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RR RUEHBZ RUEHCN RUEHDU RUEHGH RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA
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DE RUEHSA #0742/01 1060743
ZNR UUUUU ZZH
R 160743Z APR 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 8115
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 0967
RUEHBY/AMEMBASSY CANBERRA 0829
RUEHLO/AMEMBASSY LONDON 1733
RUEHMO/AMEMBASSY MOSCOW 0978
RUEHNE/AMEMBASSY NEW DELHI 0570
RUEHOT/AMEMBASSY OTTAWA 0787
RUEHFR/AMEMBASSY PARIS 1569
RUEHSG/AMEMBASSY SANTIAGO 0251
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 03 PRETORIA 000742 
 
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 SF CH
SUBJECT: China Sustains Interest in African Minerals and Energy 
Resources 
 
REF: Pretoria 393 
 
This cable is not for Internet distribution. 
 
¶1. (SBU) Summary.  The African Mining Indaba in Cape Town February 
9-12 provided verve for discussion on China's interest in African 
resources (Reftel).  The consensus view was that China is taking a 
long-term perspective on its resource investments in Africa, but 
driving harder bargains in the global downturn.  China has committed 
to investment and building infrastructure in Africa in exchange for 
access to resources, particularly in resource-rich states like South 
Africa, Namibia, Angola, Nigeria, and the Democratic Republic of 
Congo (DRC).  Despite a decline in many export sectors, China 
remains the "locomotive of resource demand" for its own 
infrastructure build, according to many analysts at the Indaba. 
China has recently established a multi-billion dollar China-Africa 
Development Fund and an associated office in South Africa to 
facilitate funding of resource projects.  Many South Africans are 
concerned that the government is being excessively influenced by 
China.  End Summary. 
 
--------------------------------------------- 
China's Industrial Growth Needs Raw Materials 
--------------------------------------------- 
 
¶2. (SBU)  Chinese economic growth has declined substantially from 
the heady 9-12 percent per year of the past five years to the 
current 6.5 percent, according to analysts.  China remains a 
"locomotive of resource demand" despite plunging exports, factory 
closures, and many areas of production decline, according to The 
Beijing Axis Group Managing Director Kobus van der Wath, an advisor 
to South African capital and mining companies in China.  There would 
be a painful economic adjustment in the near term, but the migration 
of people to the cities would help maintain China's growth for the 
medium and long term, Van der Wath said at the recent Canadian 
mining conference PDAC 2009. 
 
¶3. (SBU)  The Beijing Axis forecasts a Chinese GDP growth of 5.6 
percent in 2009 and 7.5 percent in 2010, but acknowledged the 
downside risk to these estimates.  While China is not going to 
unravel, Van der Wath said, it will grow at a slower rate.  He noted 
that China had surpassed the U.S. in many categories and was now the 
world's largest consumer of commodities such as zinc, nickel, 
copper, and aluminum.  The construction industry is being driven by 
migration from the population-dense east to cities in the central 
and western regions of China.  Van der Wath cited massive investment 
growth and said resource-rich parts of Africa, Australia, and Canada 
would have the highest likelihood of attracting Chinese capital. 
Observers believe that China is also restocking depleted stockpiles 
of strategic construction metals. 
 
--------------------------- 
African Resources for China 
--------------------------- 
 
¶4. (SBU)  Van der Wath and other analysts said the Chinese are in 
Africa for the "long haul" and plan major investment in the 
QAfrica for the "long haul" and plan major investment in the 
continent's minerals and energy sectors.  Africa is credited with 
hosting some 30 percent of the world's mineral resources and these 
have attracted Chinese interest.  These include: Niger and Namibian 
uranium; Angolan and DRC oil; DRC and Zambian copper and cobalt; 
South African platinum group metals (PGM), ferro-metals, and 
ferro-alloys; and West-African bauxite deposits (aluminium ore). 
Initially, China targeted undeveloped ore bodies in the developing 
world, particularly in Africa.  This has been facilitated by the 
episodic abandonment of Africa as a minerals investment destination 
by major Western countries.  Chinese "investment", by way of grants, 
repayable loans, trade concessions, and infrastructure build, using 
Chinese engineers and labor, is being exchanged for access to and 
ownership of resources. 
 
PRETORIA 00000742  002 OF 003 
 
 
 
¶5. (SBU) Here is a partial list of China's global resource and other 
investments, many in Africa, gleaned from a number of media sources 
and contacts: 
-- $9 billion mining and infrastructure loan to the DRC in return 
for the supply of 10 million tons of copper and two million tons of 
cobalt over a 15 year period; 
-- Zijin Mining Group bought a 20 percent stake in the $100 million 
Blue Ridge platinum mine and the Sheba Ridge platinum project on 
South Africa's Bushveld Complex; 
-- the Oppenheimer family sold a third of its stake in Anglo 
American to China Vision Resources for $550-600 million in November 
2006; 
-- $1.5 billion for a power plant and a multi-facility economic zone 
on the Zambian copperbelt; 
-- Chinalco's proposed $19.5 million investment in Australian Rio 
Tinto; 
-- Minmetals' purchase of shares in Chile's Escondida copper mine 
and Australia's Hammersley iron ore and Oz Minerals; 
-- Industrial and Commercial Bank of China's (ICBC) $5.5 billion 
purchase of 20 percent in South Africa's Standard Bank in 2007; 
-- $5 billion China-Africa Development Fund to facilitate funding of 
resource projects with an associated office in South Africa 
announced in March 2009; 
-- increasing imports of South African iron, manganese, and chrome 
ores despite the government's policy of local beneficiation. 
(Note:  Australian ventures are subject to approval by the 
Australian Foreign Investment Review Board.  On April 14, Oz 
Minerals signed a $1.2 billion asset sales agreement with China's 
Minmetals, but excluded assets located close to a military test 
area.  End Note.) 
 
------------------------ 
South Africa's Potential 
------------------------ 
 
¶6. (SBU)  South Africa is likely to remain of interest to China. 
South Africa still has significant known deposits of gold, PGMs, 
ferro-metals, diamonds, and other minerals, and the potential for 
further discoveries, given new exploration and mining technology, 
despite being a mature mining country.  South Africa is the dominant 
economic force on the continent and offers a developed-world 
"gateway" to the rest of Africa.  It is virtually self-sufficient in 
food supply, has a well-developed infrastructure and industrial 
capacity, significant skills (albeit a shortage of sufficient 
skills), accounts for some 30-40 percent of the continent's GDP, and 
produces 50 percent of its generated electricity.  South Africa has 
one-third of Nigeria's population but nearly five times its 
power-generating capacity. 
 
--------------------------------------------- -- 
Bargain Basement Prices Benefit Cash-Rich China 
--------------------------------------------- -- 
 
¶7. (SBU)  The mineral commodity melt-down of September 2008, in 
which the value of mining stocks and commodities declined on average 
by 50-60 percent, has presented Chinese companies with a mssive 
buying opportunity and the potential to develop mines at a much 
reduced cost for input materials.  South Africa's and former Anglo 
Qreduced cost for input materials.  South Africa's and former Anglo 
American's Scenario Planner Clem Sunter, at a Pretoria University 
Business School presentation in January 2008, compared China's 
resource strategy with that of Japan's in the 1960-80's at the 
height of its industrial expansion.  China's demand for raw 
materials to produce export goods has declined in the wake of 
faltering consumer demand in Western countries.  However, growth of 
its domestic infrastructure for industrialization remains a priority 
for the government for jobs and social stability, according to 
Beijing Axis' Van der Wath.  He said concern for the consequences of 
an economic slow-down and possible massive unemployment has ensured 
that jobs lost in the export sector are, wherever possible, replaced 
 
PRETORIA 00000742  003 OF 003 
 
 
by jobs related to infrastructure build.  According to UK-based 
company Control Risks, the Chinese government has allocated more 
than $1 billion for this purpose. 
 
--------------------------------------------- --- 
China Needs Africa's Strategic Natural Resources 
--------------------------------------------- --- 
 
¶8. (SBU) The consensus analyst and press view is that China's 
interest in African resources is sustained, but China may be driving 
harder bargains and avoiding some of the highest risk countries in 
light of the commodity downturn.  South African Frontier Advisory 
CEO Dr. Martyn Davies said this interest was the result of China's 
demand for resources and Africa's ability to supply such 
commodities, speaking during his presentation at the Mining Indaba. 
According to Davies, Africa was dependent on China's demand for 
natural resources to sustain its economic growth, but equally, 
China's economic growth was dependent on Africa's ability to supply 
such resources.  China is Africa's and South Africa's second-biggest 
trading partner, behind the U.S. and Germany, respectively, but 
South Africa's trade balance lies heavily in China's favor.  Natural 
resources comprised 80 percent and 88 percent of African and South 
African total exports to China, respectively.  Owing to this 
reliance on African commodities, Davies said Beijing would continue 
investing in Africa, despite the high investment risk associated 
with many countries on the continent.  This is evidenced by the fact 
that China plans to spend $1 billion in Africa on commodity and 
industrial projects by October 2009. 
 
------- 
Comment 
------- 
 
¶9. (SBU)  Discussions with several representatives of South African 
mineral producers and fabricators indicate the extent to which they 
are dependent on a revival of Chinese demand.  These discussions 
reveal that China is prepared to use this as a leverage to extract 
concessions from both companies and governments.  The SAG has agreed 
not to apply Article 16 of the WTO protocol dealing with 
anti-dumping duties and safeguard measures in trade with China. 
This has left South African companies with little recourse to 
counter unfair trade practices, except in the case of government 
subsidies on imports.  The Chinese government has also shown 
willingness to "lean" on South African-based companies or their 
international head offices if they seek protection from unfair trade 
practices, as evidenced by the withdrawal by Swiss company Franke 
Kitchen Systems of their countervailing action against subsidised 
Chinese imports into South Africa.  A recent example of Chinese 
influence was the SAG's decision not to grant a visa to the Dalai 
Lama to attend a peace conference in South Africa, stating that this 
would take media focus off the upcoming 2010 Soccer World Cup.  Many 
South Africans are criticizing the government for being too subject 
to Chinese influence, including the Minister of Health's recent 
Qto Chinese influence, including the Minister of Health's recent 
public criticism of the decision not to grant a visa to the Dalai 
Lama. 
La Lime