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TAGS: EPET ENRG EMIN EINV EIND ETRD ELAB KHIV SF
SUBJECT: South Africa: Minerals and Energy Newsletter "THE ASSAY" - 
Issue 2, February, 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. 
 
-------------------------------- 
CORRECTION Re Zambian Mining Tax 
-------------------------------- 
 
¶2. (SBU) In the last issue of The Assay, Issue 1, January 2009, the 
article "Zambia Abolishes Windfall Tax" stated that mining taxes 
accounted for 63% of government revenues.  This was a regrettable 
over-statement, based on an inaccurate press report, as the actual 
contribution from mining was less than 6% in 2008, split fairly 
evenly between normal company tax and the now-abolished windfall 
tax.  These figures were obtained from the Budget Speech in the 
Zambian Parliament and confirmed by colleagues at the U.S. and 
Norwegian Embassies in Lusaka.  We apologize for this error. 
 
-------- 
HOT NEWS 
-------- 
 
-------------------------------------- 
SA Minerals Act - is it Expropriation? 
-------------------------------------- 
 
¶3. (SBU) The SAG could face claims worth billions of rands after a 
court ruling in favor of a farmers' representative body, Agri-SA, 
which had coal rights taken by the Department of Minerals and Energy 
(DME) under the Mineral and Petroleum Resources Development Act 
(MPRDA) of 2002.  Deprivation of old-order mineral rights could 
constitute expropriation, a Pretoria High Court has found.  Judge 
Willie Hartzenberg on March 6 ruled in favor of the arguments of 
Agri-SA, which claimed amounts of $75, 000 and $60,000 from the 
Minister of Minerals and Energy for the expropriation of their 
old-order mineral rights.  The Minister argued that the MPRDA did 
not constitute an expropriation and that the Act makes provision for 
compensation, provided the claimant can prove their property was 
expropriated in terms of any provision of this Act.  This was the 
first court case to challenge the legality of the MPRDA.  Most 
companies have preferred not to lose favor with the DME by "muddying 
the waters".   This ruling opens the door for other claimants to 
pursue compensation for expropriation of mineral rights. 
¶4. (SBU) The enactment of South Africa's controversial MPRDA was 
bound to be challenged in court.  The Act, as implemented in 2004, 
vests all mineral rights in the state.  Further, a time period was 
set in which any mineral properties not worked would revert to the 
Qset in which any mineral properties not worked would revert to the 
state on the basis of "use it or lose it".  Privately-held mineral 
rights (termed old-order rights) have to be converted to new-order 
prospecting and mining rights.  This is not a simple rubber stamp 
conversion of old-order to new-order rights as was originally 
envisaged by holders of mineral rights, but applicants are 
effectively required to meet a host of obligations to have their 
rights converted.  The Act was designed to transform the racial 
makeup of the sector and bring more previously disadvantaged South 
Africans into formal mine ownership and operations. Law firm Webber 
Wentzel claims that the judgement is a major victory for holders of 
old-order rights, but Bell Dewar (another law firm) has cautioned 
against too optimistic a view as compensation will be determined on 
a strictly factual approach having regard to the circumstances of 
each case. 
 
 
PRETORIA 00000596  002 OF 008 
 
 
------------------------------------------ 
Department of Minerals and Energy to Split 
------------------------------------------ 
 
¶5. (SBU) South Africa's Minister of Minerals and Energy Buyelwa 
Sonjica expects her department to be split into two separate 
ministries if the ruling African National Congress wins the April 22 
election.  Sonjica said both energy and minerals were vital to the 
country's economy and having two separate ministries would allow 
more time and energy to be devoted to each.  Mining experts expect 
the new Energy Ministry to be responsible for implementing a clear 
energy strategy, while the Mines Ministry would have more scope to 
tackle issues still unresolved.  Such issues would include ensuring 
a genuine and broad-based transfer of more control of the mining 
industry to black management and ownership. 
 
------------------------------- 
Cape Town African Mining Indaba 
------------------------------- 
 
¶6. (SBU) Review: A cloud of gloom due to the steep downturn in 
commodity prices pervaded the 14th African Mining Indaba, which took 
place in Cape Town February 9-12.  This contrasted starkly with last 
year's celebration of the commodity boom.  Last year's concern about 
regional power shortages was all but forgotten, but regulatory 
uncertainty remained a significant issue for South Africa and the 
region.  Although investment in and credit for mining are scarce on 
the continent, observers saw signs of some recovery in China, whose 
demand has been the key driver for mining investment. 
 
¶7. (SBU) The Indaba is one of the world's largest mining investment 
conventions, attended by ambassadors, ministers and company CEOs 
from all parts of the world.  This year's Indaba consensus was that 
Chinese interest in resource deals in Africa will be sustained, 
despite its economic slow-down.  Attendance at the Indaba was down 
one-fifth from the record attendance last year (from 5000 to 4000). 
Conference Director Tim Wood told delegates that companies 
represented at the Indaba last year had a total market value of $1.3 
trillion, but this year their value had fallen to $560 billion. 
Keynote speakers detailed the extent of weak global growth, 
particularly in the U.S. and Europe.  The global slowdown had 
reduced demand for basic commodities, with the exceptions of coal 
and gold, which still draws investors seeking safe havens in 
turbulent times.  Some speakers pointed to signs of a turn-around, 
particularly in China, and observed that the mining industry had 
overcome cyclical downturns many times before. 
 
¶8. (SBU) Minister's Presentation: Energy Minister Buyelwa Sonjica 
offered help to the South African mining industry in her opening 
address at the Indaba.  She stressed that her Department aimed to 
provide an enabling environment for industry to overcome the global 
economic slowdown, which she characterized as a "still unfolding 
process".  Sonjica said South Africa had to manage the current 
Qprocess".  Sonjica said South Africa had to manage the current 
slowdown and be prepared for the next commodity boom.  The Minister 
cited government's huge infrastructure spending and the Department 
of Minerals and Energy (DME) task force that is considering measures 
to reduce job losses, as examples of government assistance.  Sonjica 
called on industry to use all means possible to avoid retrenchments 
and to engage with labor and government to look for innovative 
alternatives.  She said she was committed to reviewing the Mining 
Charter to assure that efforts to transform the industry were making 
progress.  She admitted that Broad-Based Black Economic Empowerment 
provisions did not always yield real broad-based transformation 
(that is, reaching beyond the usual BEE players.)  Sonjica warned 
mining companies that they must submit applications for conversions 
of mining licenses under the Minerals and Petroleum Resource 
Development Act by April 30.  She emphasized government's commitment 
to improving mine safety and securing greater downstream minerals 
beneficiation in South Africa.  Finally, Sonjica said South Africa 
had postponed - but not abandoned - its plans to build new nuclear 
power plants. 
 
 
PRETORIA 00000596  003.2 OF 008 
 
 
¶9. (SBU) Mining Woes: The fall in commodity demand has raised the 
specter of job losses and unemployment in mining.  Estimates of the 
number of potential job losses in the South African industry were as 
high as 30-40,000 (Note:  The industry created some 60,000 jobs in 
the industry during the boom years, according to the Chief Economist 
of the Chamber of Mines Roger Baxter.  End Note.)  Mining 
consultancy Behre Dolbear showed a recent ranking of the investment 
climate for 20 mining countries, which placed South Africa 
nineteenth, largely because of uncertainties over security of mining 
rights.  An investment banker warned that a number of black 
empowerment deals required under the Mining Charter were in 
financial trouble after deterioration in company earnings and share 
prices.  (Note:  Most BEE deals rely on dividend streams to pay 
interest on loans used to buy shares in companies.  End Note.)   The 
Minister of Finance Trevor Manuel provided a life-line of sorts to 
struggling mining companies when he decided to delay by a year the 
implementation of mining royalties, which would have imposed an 
additional burden on them. 
 
¶10. (SBU) Gold a Safe Haven in Troubled Times: Gold surged to its 
highest level in seven months on February 17 as global equity 
markets continued falling, raising the metal's appeal as a safe 
investment haven.   Speakers at the Indaba pointed out that gold was 
holding its value compared to all other commodities.  A weakening 
rand caused gold to hit an all-time high in rand terms of R9,958 per 
ounce, which has benefited South African company earnings and share 
prices.  Platinum at below $1,100 per ounce is less than half of its 
March 2008 high of $2,300 per ounce due to its reliance on the U.S. 
car market, which is in the doldrums.  Similarly, rough diamond 
prices have fallen 50-60% because of the weak U.S. luxury goods 
market and sales are at their lowest in decades.  Quantitative 
Commodity Research company said the uncertainties in the economy 
were driving investors into gold and precious metals.  Stanlib 
Economist Kevin Libbs said although gold's contribution to South 
African exports had shrunk from 50% in the early 1980s to 10-12% 
today, the rise in gold price would be beneficial for South Africa's 
current account deficit and could help gold companies avoid 
retrenchments. 
 
------ 
ENERGY 
------ 
 
------------------------------- 
Government Guarantees for Eskom 
------------------------------- 
 
¶11. (SBU) State-owned power utility's Eskom's credit ratings have 
dipped dramatically since the beginning of the power crisis in 
January 2008.  This has made it difficult and expensive for it to 
secure funding for its projects.  The SAG has thrown Eskom a life 
line by approving guarantees totalling $17.6 billion over 5 years to 
support the Eskom capital-expansion programme. This is in addition 
to a $6 billion equity injection already approved. Government rights 
Qto a $6 billion equity injection already approved. Government rights 
will be subordinate to other un-guaranteed lenders and commercial 
creditors.  The hope is that Eskom's credit rating will improve. 
Government has committed to repaying the debt, if necessary, in its 
entirety or to continue making payments on Eskom's behalf.  An 
annual limit has been set for borrowings in any one year based on 
Eskom's cash-flow requirements. 
 
-------------------------- 
Namibia's Huge Gas Project 
-------------------------- 
 
¶12. (SBU) Namibian power utility NamPower plans to proceed with its 
$1 billion Kudu gas-to-power project despite the credit crisis, 
according to NamPower General Manager of Power Systems Reiner Jagau. 
 Jagau said he expected commercial agreements, which have delayed 
the project for a number of years, to be finalized before year-end 
and for first gas to be piped within three years of a final 
investment decision.  Namibia is investing in the Kudu gas-to-power 
 
PRETORIA 00000596  004.2 OF 008 
 
 
project to help overcome power shortages affecting its key mining 
industry and to lessen dependence on South Africa for imported 
electricity.  The Kudu gas project is a joint venture between Tullow 
Oil of Ireland and NamPower.  It involves pumping natural gas from 
the Kudu gas field to an 800 megawatt combined cycle gas power 
station near Oranjemund, on the coast in southern Namibia.  The 
field is located about 170 kilometers offshore, in about 200 meters 
of water, and with a well depth exceeding 4,500 meters.  The project 
is expected to generate electricity for 22 years and be connected to 
both the Namibian and South African power grids.  The gas will be 
expensive and setting a competitive price is the outstanding 
challenge. 
 
------------------------------------ 
South Africa's Oil and Gas Potential 
------------------------------------ 
 
¶13. (SBU) South Africa produces limited amounts of natural gas and 
crude oil from a number of small offshore deposits along the 
southern coast of the Western Cape Province.  Reserves are modest 
and will be depleted by about 2011-2012, pending further discoveries 
(January 2008 estimates of gas reserves were 318 billion cubic 
feet).  Limited hydrocarbon exploration, particularly using 
state-of-the-art technology, has been carried out in to date for a 
variety of reasons and the possibility of new discoveries exist, 
particularly in deep waters.  Natural gas produced is used to supply 
state oil company PetroSA's gas-to-liquid (GTL) plant at Mossel Bay, 
which produces liquid fuels and chemicals.  In particular, the plant 
produces a zero-sulfur diesel that is exported or sold to local 
markets for blending with higher sulfur diesels, according to 
PetroSA Manager Faizel Mulla.  PetroSA is looking to secure other 
gas supplies, including imports of LNG, to maintain production at 
its GTL plant.  South Africa's synthetic gas-to-liquids producer 
Sasol imports some 4.25 billion cubic feet per year of natural gas 
from Mozambique to feed its petrochemical plant at Sasolburg and to 
supplement feed to its coal-to-liquid (CTL) facility at Secunda. 
 
¶14. (SBU) U.S. firm Forest Oil is developing the Ibhubesi gas field, 
which lies some 70-80 kilometers off the Western Cape coast, 300 
kilometers north of Cape Town.  The field is estimated to contain 
reserves of about one trillion cubic feet of gas, based on an 
initial four exploration well drilling program.  Five additional 
wells were subsequently drilled, partially funded by South African 
partner PetroSA, but these yielded disappointing results and did not 
add to the reserve base.  The field is not in production as majority 
shareholder and operator Forest Oil has been waiting for a 
production license and finalization of the fiscal and regulatory 
regime from the local authority for a number of years.  Forest 
recently posted Director John Langhus to Cape Town to procure the 
licenses, negotiate markets for the gas onshore, and generate a 
Qlicenses, negotiate markets for the gas onshore, and generate a 
return on the $100 million total investment in the project ($57 
million by Forest).  Prime candidates to take Ibhubesi gas are state 
power utility Eskom and west coast industrial companies at Saldanha 
Bay.  (Note.  It was hoped that Ibhubesi might have sufficient gas 
to feed PetroSA's GTL plant, but it appears that the reserve is too 
small to justify the costs of a 400-600 kilometer pipeline to the 
plant at Mossel Bay.  End Note.) 
 
------------------------------------------ 
BHP-Billiton Exploration May be the Answer 
------------------------------------------ 
 
¶15. (SBU) Diversified miner BHP-Billiton's aspiration to drill a 
$50-$70 million exploration oil well in deep water (2,000 meters) 
off South Africa's west coast has been stymied by the lack of fiscal 
and regulatory certainty caused by changes to the new minerals 
legislation.  The company and the South African government are 
progressing in their discussions on the fiscal framework under which 
drilling for oil offshore could proceed, according to new BHP 
Billiton Southern Africa Chairperson Dr Xolani Mkhwanazi.  BHP has 
two oil exploration concessions, covering an area of 21,630 square 
kilometers, in water depths ranging from 300-2,500 meters, and 
 
PRETORIA 00000596  005.2 OF 008 
 
 
situated 175 kilometers northwest of Cape Town.   The company is 
understood to have spent $20-$30 million on its west coast surveys 
and studies so far and has been negotiating with various branches of 
the South African government for some time on exploration 
concessions.  Mkhwanazi said the proposed project would be mutually 
beneficial for both South Africa and BHP and that the company was 
seeking long-term stability for itself beyond the exploration phase. 
He said BHP needed a long-term financial regime that is consistent 
over time and government needs BHP to provide a long-term guarantee 
of investment. 
 
------------------------------- 
GE Upgrade Sasol Steam Turbines 
------------------------------- 
 
¶16. (SBU) U.S. company GE Energy and oil-from-coal company Sasol 
have entered into a multi-million-dollar agreement to upgrade the 
reliability and efficiency of Sasol's steam turbines at their 
Secunda synfuels facility.  The upgrade using modern materials, 
design, and components will significantly reduce the probability of 
unplanned outages, result in significant turbine life extension, and 
reduced future maintenance expense, according to GE Energy Africa 
Region Executive Mark Digby.  The upgrade will improve the overall 
efficiency of Sasol's steam use and, thereby, increase its on-site 
power-generation capacity and reduce electricity demand on Eskom. 
 
------------------------ 
PBMR Re-Engineers Itself 
------------------------ 
 
¶17. (SBU) South Africa's home-grown nuclear power company, the 
Pebble Bed Modular Reactor (PBMR) company faces budget constraints 
and is in the process of redefining its near-term market strategy. 
This was prompted by its major shareholder's (state-owned Eskom) 
difficulty obtaining funding due to its risk downgrading, coupled 
with the global financial crisis, and the growing demand for 
process-heat and hydrogen generation.  Modification of the design 
planned for the demonstration power plant at Koeberg near Cape Town 
is under consideration to enable it to service potential customers 
such as Canadian synthetic oil producers and petrochemical company 
Sasol.  Both need large quantities of high-temperature steam to 
extract bitumen from oil sands and to convert coal to liquid fuels 
and chemicals, respectively.  A potential application, vital to 
water-constrained South Africa, is the use of PBMR's waste heat for 
desalination.  According to PBMR CEO Jaco Kriek, certain contracts 
are likely to be put on hold to prevent unnecessary spending, but he 
emphasised that no contracts had been cancelled. 
 
------ 
MINING 
------ 
 
---------------------- 
Beer Better than Anglo 
---------------------- 
 
¶18. (SBU) Diversified South Africa-rooted miner Anglo American has 
dropped to third place on the South African stock market behind 
beer-brewer giant SABMiller.  SABMiller is valued at R234 billion 
verses Anglo's R210 billion.  Anglo's shares took a pounding on the 
Qverses Anglo's R210 billion.  Anglo's shares took a pounding on the 
market when it decided to suspend dividend payments indefinitely to 
conserve cash, for the first time since the start of World War II. 
Additionally, operating results were worse than anticipated due to 
the fall in commodity prices in the second half of 2008 and its 
share price has fallen by nearly 70% since September 2008.  These 
factors also caused CEO Cynthia Carroll to announce the company's 
intention to shed some 19,000 jobs -- 10,000 from Anglo Platinum in 
which Anglo holds an 80% interest -- and the rest across geographies 
and business units.  Carroll blamed the company's poor performance 
on the world economic crisis, falling commodity prices, the 
unprecedented level of uncertainty, and the poor near-term outlook 
for commodities.  One ray of light was the increased demand for 
 
PRETORIA 00000596  006.2 OF 008 
 
 
iron-ore from China in the first months of 2009.  Iron ore 
production at Kumba's Sishen Iron Ore mine, Anglo's 65%-owned 
subsidiary, increased 13% to 36.7 million tons per annum. 
 
--------------------------- 
Ignore Africa at Your Peril 
--------------------------- 
 
¶19. (SBU) It doesn't make sense for a mining company to be serious 
about growth, without looking at possibilities in Africa.  So said 
AngloGold Ashanti CEO Mark Cutifani at a BMO Capital Markets mining 
conference in Florida.  He said he is becoming increasingly 
optimistic about Africa, which hosts an estimated 30% of the world's 
mineral resources.  Besides its South African assets, 
Johannesburg-based AngloGold has mines in Ghana, Guinea, Mali, 
Namibia and Tanzania, as well as exploration property in the 
north-east of the Democratic Republic of Congo.  Despite ongoing 
uncertainty because of the mining contract review under way in the 
DRC, the firm plans to hold onto its assets there.  Cutifani said 
AngloGold had "a great piece of ground" in the DRC and was still in 
talks with the government about potential changes to its mineral 
lease agreements, but was optimistic about a positive outcome.  He 
said the country needed more time, perseverance, and support from 
significant players in the region and AngloGold is watching the 
progress made by Phoenix-based Freeport-McMoRan at its Tenke 
Fungurume copper/cobalt project with great interest. 
 
-------------------------------------------- 
Asia - Key to South Africa's Mineral Exports 
-------------------------------------------- 
 
¶20. (SBU) South Africa's growth outlook is increasingly dependent on 
trade with Asia.  Nearly 30% of its exports go to Asia, according to 
the Standard Bank and these fell 10.5% year on year in December. 
Total exports to the region for the first 11 months of 2008 were 
worth about $18 billion, with minerals accounting for 73% of that 
figure.  Base metals contributed $4.5 billion, coal $4.4 billion, 
and precious stones and metals $4.2 billion, according to the latest 
available SA Revenue Service figures.  The fall in Asian demand is 
due to the region's own export performance, according to UK-based 
think-tank Chatham House, where declines of some 30%-40% since 
November have been recorded by countries such as South Korea, 
Taiwan, and Japan.  Emerging Asia was still expected to grow at 
2%-3% in 2009, Chatham House said, but their forecast was dependent 
on a relatively robust growth for China and, to some extent, India. 
Should these fail, Asia's average growth rate may be close to zero. 
Given the size of Asia and its imports, such a decline would create 
major negative impacts on South Africa's commodity exports. 
 
------------------------------ 
Power Shifts in African Mining 
------------------------------ 
 
¶21. (SBU) Governments in both the developed and developing countries 
tend to become dissatisfied when mining companies earn most of the 
additional (windfall) revenues from inflated commodity prices during 
Qadditional (windfall) revenues from inflated commodity prices during 
boom times.  This may give rise to "resource nationalism", which can 
take the form of government intervention and renegotiation of 
fiscal, tax, royalty, and ownership agreements aimed at increasing 
government revenues or even total nationalization of mineral assets. 
 These actions may be taken, with or without consultation with 
affected companies.  In most cases, governments have the upper hand 
as sunk costs and immovable assets prevent companies from taking 
significant retaliatory measures.  Cases in point include South 
Africa's new mineral legislation, Zambia's proposed windfall taxes, 
and the DRC's review of mineral leases and mine ownership shares. 
However, the current global financial crisis has seen commodity 
prices and trade halved and the negotiation table turned somewhat in 
favor of mining companies. 
 
¶22. (SBU) The balance of bargaining power between resource companies 
and African governments is shifting in favor of investors in the 
 
PRETORIA 00000596  007.2 OF 008 
 
 
wake of collapsed commodity prices.  Control Risks company's 
sub-Saharan Africa analyst Christopher Melville advised companies at 
a briefing in Johannesburg to exercise restraint when seeking to 
push home this advantage, lest they run the risk of a backlash from 
governments once economic conditions improve and prices started to 
rise again.  He said he expected emerging market demand, 
particularly from China and India, to return as their fundamental 
drive for economic development remained in place and would kick in 
again sooner rather than later.  He suggested that, given the 
current depletion of stocks and the closing of a number of African 
projects, there was a good possibility that commodity shortages 
could re-emerge as early as 2010.  He pointed to two significant 
deals involving Chinese companies, namely state-owned Chinalco's 
offer to nearly double its equity stake in Rio Tinto to 18% and 
Australian company Oz Minerals' agreement to sell all its 
outstanding shares to Chinese company Minmetals Nonferrous Metals in 
a deal worth about $1.7 billion. 
 
---------------------------- 
Mintek to Footprint Diamonds 
---------------------------- 
 
¶23. (SBU) The legitimate global diamond trade is worth some $60-$70 
billion annually, but is currently being scorched by the economic 
crisis, which has cut demand for rough stones by more than 60%. 
This, in turn, has cause De Beers to close all its operations in 
Botswana, which provides the bulk of its rough diamonds.  The global 
industry's debt peaked at $14-$15 billion in mid-2008, according to 
banks and industry groups, but credit plays a crucial role in 
financing the industry.  The burden of this debt increases as 
diamond sales and revenues decline.  Currently, trade is about 
one-tenth of usual levels.  Trade in illicit diamonds, though small, 
has an impact on the legitimate trade, especially in times of 
crisis.  Hence the South African Diamond and Precious Metals 
Regulator (SADPMR) and state-owned research parastatal Mintek have 
launched a project to study the possibility of determining the 
origin of rough diamonds.  According to Mintek, the study is aimed 
at ascertaining whether trace element analysis can be used in 
combination with physical characteristics to link diamonds to their 
source, particularly in the case of illicitly traded stones. 
 
¶24. (SBU) The heart of the project is a new laboratory facility in 
Mintek's Mineralogy Division, which is funded by the SADPMR and 
equipped with state-of-the-art equipment capable of analysing more 
than 70 elements at sub-parts-per-billion and lower levels. 
According to SADPMR Strategist Ashok Damarupurshad, if proven 
successful, diamond fingerprinting would help to reduce theft and 
illegal mining and assist in preventing conflict diamonds from 
entering the legitimate trade.  That is the objective of the 
Kimberley Process Certification Scheme and the reason that the 
SADPMR provided the initial funding to establish the laboratory at 
QSADPMR provided the initial funding to establish the laboratory at 
Mintek.  The laboratory was completed in November 2008 and is the 
first of its kind in Africa.  Mintek has also launched a project to 
study the origins of rough diamonds, which it says will focus on 
diamond sources in southern Africa, particularly alluvial diamonds, 
which are less easy to control than those from kimberlite 
(hard-rock) mining operations. 
 
-------------- 
Infrastructure 
-------------- 
 
------------------------------------------ 
Kumba Offers to Assist State Rail Services 
------------------------------------------ 
 
¶25. (SBU) There is a mismatch between South Africa's rail capacity 
and that of mine production and port handling capacities.  Iron ore 
and coal producers want to mine and export greater tonnages, but 
inadequate rail capacity, poor management, and inefficient 
operations have put an effective cap on export expansion.  Both the 
coal and iron ore producers have volunteered to build new facilities 
 
PRETORIA 00000596  008.2 OF 008 
 
 
or lease and operate existing ones to assist government to implement 
proposed expansions, but this has been turned down. 
Government-owned parastatals seem ideologically opposed to private 
ownership or involvement in state enterprises and unions have 
vigorously opposed any such moves by government.  Until recently, 
the prospect of a public-private-partnership (PPP) has not been an 
option available to iron-ore miner Kumba Iron Ore (KIO), 65% owned 
by Anglo American.  However, the company started discussions with 
state-owned Transnet Freight Rail towards the end of 2008 on the 
possible creation of a PPP.  The door for such an engagement with 
government seems to have slightly opened, according to KIO CEO Chris 
Griffith. 
La Lime