VZCZCXRO8713
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #1017/01 1400829
ZNR UUUUU ZZH
R 200829Z MAY 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 8532
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 0984
RUEHBY/AMEMBASSY CANBERRA 0843
RUEHLO/AMEMBASSY LONDON 1747
RUEHMO/AMEMBASSY MOSCOW 0992
RUEHNE/AMEMBASSY NEW DELHI 0584
RUEHOT/AMEMBASSY OTTAWA 0801
RUEHFR/AMEMBASSY PARIS 1584
RUEHSG/AMEMBASSY SANTIAGO 0260
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 06 PRETORIA 001017 
 
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 3-4, March-April, 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 
-------- 
 
--------------------------------------- 
Minerals and Energy Portfolios to Split 
--------------------------------------- 
 
¶2. (SBU) Splitting of the South African Department of Minerals and 
Energy will lead to more focused attention on energy and mineral 
issues, according to mining industry contacts.   Mining and energy 
are increasingly complex sectors that can no longer be effectively 
managed by one ministry.  The move has been generally applauded by 
the respective industries.   Mining has historically been the 
driving force in the South African economy and generally 
over-shadowed energy, but this is no longer the case and mining is 
dependent on a secure supply of quality energy to stay in business. 
 
 
¶3. (SBU) The new Minister of Energy Dipuo Peters is the former 
premier of the Northern Cape Province.  She is an unknown quantity 
as far as energy matters are concerned and faces numerous challenges 
in all sectors of the power supply chain, from generation to 
distribution and the issue of power to rural communities.   She also 
will need to identify, establish, and implement a framework for 
participation of the private sector, an issue that has been 
bedeviled by power utility Eskom's low tariffs, resistance from 
unions, and government's inability to make decisions.  The South 
African Petroleum Industry Association (SAPIA) has also supported 
the establishment of energy into a separate ministry.  The Chamber 
of Mines said it was pleased with the appointment of Minister of 
Mining Susan Shabangu, noting that she had previously served as 
Deputy Minister of Minerals and Energy and was well aware of the 
issues facing the mining industry.  The new cabinet will have to 
coordinate oversight of Eskom, which falls under the Department of 
Public Enterprises. 
 
--------------------------------------- 
SA's First Quarter Output Down by 12.8% 
--------------------------------------- 
 
¶4. (SBU) South Africa's mining production for the month of March was 
down 4.6% on March 2008, state-owned Statistics South Africa (Stats 
SA) reported.  Total mining production for the quarter ended March 
2009 was down 12.8%, compared with the quarter ended December 2008. 
Q2009 was down 12.8%, compared with the quarter ended December 2008. 
Stats SA reported that the main contributors to the quarter's 
decline were platinum-group metals (PGMs), chrome, and diamonds. 
South Africa's mining output figures do not look good, but some sort 
of a base was starting to build, according to fund manager 
director Sasha Naryshkine.  He said the two biggest draw-downs in 
the quarter had been diamonds and chrome, with each recording a 
52.2% decline compared to the quarter ended December 2008.  He 
noted: 
-- many diamond-mining companies had placed their operations on 
care-and-maintenance as a result of lower demand during the first 
quarter of the year; 
-- gold had increased by 0.2% quarter-on-quarter; 
-- iron-ore remained flat, but there were signs of improvement in 
 
PRETORIA 00001017  002 OF 006 
 
 
the demand for iron-ore; 
-- PGM production would increase once the automotive industry 
started its turnaround; 
-- local coal demand would increase now that South Africa was 
entering its winter. 
 
------ 
ENERGY 
------ 
 
------------------------------- 
New Uranium Plant for AngloGold 
------------------------------- 
 
¶5. (SBU) AngloGold Ashanti is building a new uranium plant at its 
Kopanang mine in the North West Province.  This will boost South 
Africa's uranium output by 60% to about 2.2 million pounds of U3O8 
(1,000 tons) per year.  Chief executive Mark Cutifani said the 
Kopanang plant would result in AngloGold producing more than 2 
million pounds (910 tons) of uranium per year, up from 1.3 million 
pounds (590 tons) last year.  The plant is estimated to cost about 
$233 million.  Cutifani said AngloGold was expecting the uranium 
price to trade at between $65 and $70 per pound of U3O8 over the 
long term, compared with a prevailing spot price of $44 per pound. 
AngloGold produces uranium as a by-product at its gold mines. 
AngloGold spokeswoman Joanne Jones said it was likely that almost 
all the new uranium production would be exported.  At the prevailing 
uranium price, South Africa would earn $36 million in extra export 
earnings a year from the new plant.  Jones said the plant was likely 
to start production early in 2012.  South Africa ranks 11th in the 
world in uranium production and 4th in reserves behind Australia, 
Kazakhstan, and Canada.  This could change as Namibia continues 
upgrading its considerable resource base. 
 
--------------------------- 
Uranium is Namibia's Future 
--------------------------- 
 
¶6. (SBU) Uranium could surpass diamonds as the country's most 
valuable mineral export by 2010, according to the Chamber of Mines 
of Namibia.  Namibia was ranked the world's fourth-largest producer 
of uranium oxide (U3O8) in 2008, behind Canada, Australia and 
Kazakhstan.  Planned mine expansions at Rossing and Langer Henrich 
and new developments at French company Areva's Trekkopje and 
Canadian company Forsys' Valencia projects could increase the 
country's uranium output to 13,000 tons of U3O8 per year by 2015. 
This would put Namibia into third place, above Kazakhstan.  Uranium 
exports in 2008 amounted to $629 million, up 11% on 2007, and 
accounted for 37% of total raw mineral exports and 22% of Namibia's 
total exports.  At the same time, Namibia's real mining value-added 
output is projected to decline by 29% in 2009, according to the Bank 
of Namibia (BoN).  This is due to a three-month shutdown of 
land-based diamond operations, from April, and the indefinite 
closure of the country's four copper mines at the end of 2008.  Some 
2,000 mining jobs have been lost to date, according to the Chamber, 
as a direct result of the global recession.  This may be partially 
offset by new job opportunities created by the uranium mines. 
 
¶7. (SBU) The Erongo region of Namibia hosts a large number of 
Q7. (SBU) The Erongo region of Namibia hosts a large number of 
easily-accessible, near surface, primary alaskite- and secondary 
calcrete-hosted uranium deposits.  The region lies inland from the 
coastal towns of Walvis Bay and Swakopmund in the western part of 
Namibia.  These deposits are mostly low-grade, but economically 
mineable at prices for uranium oxide (U3O8) of above $60 per pound 
projected for 2010-11.  Output of U3O8 totaled 5,150 tons in 2008, 
an increase of 52% over 2007, of which 4,070 tons were produced by 
Rossing Uranium (Rio Tinto) and 1,080 tons by Langer Heinrich 
(Paladin Resources), which is in the process of ramping up to full 
production. 
 
----------------------------------- 
SA Urged to Restart Nuclear Process 
 
PRETORIA 00001017  003 OF 006 
 
 
----------------------------------- 
 
¶8. (SBU) South Africa must restart its stalled nuclear build program 
as soon as possible in order to develop a successful nuclear 
industry, said panelists at the recent Power and Electricity World 
Africa Conference in Johannesburg.  The program has been delayed 
with the cancellation of the Eskom tender at the end of 2008.  Both 
nuclear industry and state-owned Nuclear Energy Corporation of South 
Africa (NECSA) representatives urged the SAG not to wait any longer 
before restarting the program as the nuclear industry needed 
visibility and predictability, and would not otherwise invest. 
Pebble Bed Modular Reactor (PBMR) Marketing and Localization Manager 
Gert Claasen said that a quick announcement of a construction 
schedule for the first new nuclear plant would open up opportunities 
to upgrade the entire industrial capacity of the country, decrease 
reliance on imports, and possibly increase South Africa's export 
opportunities.  Westinghouse South Africa Regional Vice President 
Rita Bowser said decision-makers had to realize that nuclear power 
was coming, and had to react now.  She said that infrastructure and 
foundations should be prepared to make the nuclear industry a 
domestic and sustainable one.  Bowser said the nuclear industry 
could tolerate delays, but needed some certainty on the size of the 
build, and timelines, soon.  It was also important to allow vendors 
to plan properly. 
 
¶9. (SBU) Panelists identified the following benefits for the South 
African nuclear industry: 
-- Provide an opportunity to develop and prepare new skills and 
technology; 
-- Create twice as many jobs as the coal-fired power industry and 
five times more than the wind power industry; 
-- A "nuclear renaissance" would stimulate economic growth; 
-- The associated manufacturing capability required would further 
stimulate growth; 
-- Nuclear power is the only greenhouse-friendly, base-load power 
technology available; 
-- Nuclear would provide energy utilities with safe, competitive, 
base-load power. 
 
---------------------------- 
China-SA Nuclear Cooperation 
---------------------------- 
 
¶10. (SBU) The advancement of the next generation Pebble Bed Modular 
Reactor (PBMR) received a boost with the signing in March of a 
Memorandum of Understanding (MOU) in Beijing between the Chinese and 
South African developers of the technology.  PBMR company of South 
Africa has been developing the pebble bed technology in parallel 
with the Institute of Nuclear and New Energy Technology (INET) of 
Tsinghua University and Chinergy Company of China.  The Chinese 
pebble bed concept is based on a 10 MW research reactor that was 
started up in Beijing in December 2000 and achieved full power 
operation in January 2003.  The MOU is designed to facilitate 
cooperation on identified areas of common interest.  The countries 
hope to pursue collaboration in a number of strategic and technical 
areas relating to high temperature reactor (HTR) projects in both 
Qareas relating to high temperature reactor (HTR) projects in both 
countries.  Director of INET Prof Zhang Zouyi says the MOU will 
create a strategic environment for the two parties to work together. 
He added that the MOU was the result of natural synergies between 
the South African and Chinese HTR project teams, which were 
highlighted at an HTR conference in Washington DC in 2008. 
 
¶11. (SBU) PBMR CEO Jaco Kriek has welcomed the collaboration with 
China.  He said the MOU will create opportunities for the future 
commercialization of the technology and strengthen supply chains in 
both countries.  The MOU is supported by both the Chinese and South 
African governments.  The two projects have chosen slightly 
different technical approaches, but both are high temperature, 
gas-cooled reactors using pebble fuel, and offer the best potential 
for sustainable, clean, reliable sources of energy with passive, 
inherently safe characteristics. Its proponents hope pebble bed 
technology will bring a new option to the energy market in the near 
 
PRETORIA 00001017  004 OF 006 
 
 
future which will offer flexible, smart grid solutions for 
electricity, process heat and steam solutions for petrochemical 
industries, oil sands extraction, and desalination.  It will also 
pave the way to high temperature hydrogen production, according to 
Kriek.  South Africa and China are widely recognized as world 
leaders in the field of high temperature reactor design. 
 
------ 
MINING 
------ 
 
----------------------------------- 
Zambia's Luanshya Mine Goes Chinese 
------------------------------- 
 
¶12. (SBU) Chinese-owned NFC Africa Mining, a unit of China 
Nonferrous Metal Mining Group, was selected by the GRZ in May to 
take over Luanshya Copper Mines in Zambia.  The mine has been under 
care and maintenance since December, according to the President of 
the National Union of Miners and Allied Workers.  Luanshya was 
Zambia's largest cobalt producer until it was closed in December 
2008, with an annual capacity of up to 4,000 tons of cobalt and 
40,000 tons of copper.   The company was also developing the 
$351-million Mulyanshi copper project, expected to produce an 
average of 60,000 tons of copper per year throughout its 10-year 
life span.  NFC already owns Chambishi Copper mines, as well as the 
new 150,000 ton-a-year Chambishi copper smelter on the Copperbelt. 
Other companies that had bid for Luanshya included London-listed 
Vedanta Resources.  Luanshya is expected to resume output at the 
mine before the end of May and will rehire around 1,700 miners who 
were laid off when the company closed.  Chinese-owned companies are 
continuing to invest in Zambia's mining sector, but are said to be 
unpopular among mine workers and politicians who accuse them of 
having poor labor and safety practice. 
 
------------------------------------ 
New Mining Code "No Cause for Alarm" 
------------------------------------ 
 
¶13. (SBU) The Mineral and Petroleum Resources Development Act of 
2002 (MPRDA) was promulgated by the State President on May 1, 2004. 
At the same time the Broad-Based Socio-Economic Charter (Mining 
Charter) for the mining industry was also implemented.  The 
objective of these legislations was to promote equitable access to 
the nation's mineral resources for all South Africans and to expand 
opportunities for historically disadvantaged South Africans (HDSA). 
The new Code of Good Practice was published in the Government 
Gazette of April 29.  It  does not replace any key elements of the 
MPRDA and Charter, but serves to provide substance to existing 
policy and to serve as a measure of the socio-economic 
transformation in the mining industry.  The Department of Minerals 
and Energy (DME) has responsibility to ensure that transformation 
within the minerals industry takes place as per the Code.   (Note. 
The new dispensation following April's general election splits the 
DME into two ministries, mining and energy.  This may require 
amendments to existing legislation and to the Code itself.  End 
Qamendments to existing legislation and to the Code itself.  End 
Note.).  The Code lays out levels of black participation to be 
attained within specific time frame and covers: equity ownership; 
management control; employment equity; human resource development; 
preferential procurement; mine community and rural development; 
beneficiation; and housing and living standards.  Compliance is to 
be measured with reference to targets set by the respective 
scorecards in the above areas.  Uncertainty in practical 
implementation of some of these requirements is causing concern in 
the industry. 
 
¶14. (SBU) The mining industry has no cause for alarm over the Code 
of Good Practice, according to the Chamber of Mines CE Mzolisi 
Diliza.  Industry says they knew that the Code was to be published 
by April 30, but claim they were not consulted on the draft 
document, which was also not made available for comment.  They are 
concerned that some areas of the Code are too specific, other areas 
 
PRETORIA 00001017  005 OF 006 
 
 
too vague, and the issue of having to provide housing for workers 
did not consider existing bargaining agreements with the unions, 
which specified such benefits.  The Code was also not clear in the 
section defining "fronting", which describes the act of placing 
previously disadvantaged South Africans in senior positions, but 
without voting rights, authority, or control in the company.  Diliza 
said the Chamber had been involved in initial discussions on the 
Code, which was supposed to be circulated for public comment by the 
DME.  He excused the DME oversight as being due to pressures of the 
general election.  The Code contained clauses that were acceptable 
to the Chamber, and others that were not, he said. 
 
------------------------------ 
Importance of Mining to Africa 
------------------------------ 
 
¶15. (SBU) An estimated 13% of the global mining sector's economic 
activity takes place in Africa and mining is one of the few sectors 
where the continent can compete in global economic terms.  Many 
countries rely heavily on revenues from the mining sector, including 
Zambia and the DRC (copper and cobalt), Botswana (diamonds), 
Tanzania, Mali, and Burkina Faso (gold).  In addition, Angola and 
Nigeria are dependent on oil revenues for economic development. 
South Africa, which has the biggest economy in Africa, relies on raw 
and processed minerals for 17-18% of GDP, more than 50% of export 
earnings, 18% of total fixed investment, and 35% of liquid fuel 
requirements, using coal-and-gas-to-liquid technology (CTL and GTL, 
respectively).  The current global financial crisis has resulted in 
a significant fall in the demand for and price of mineral 
commodities and the withholding of finance to fund exploration, new 
mine development, and mine expansions.  This is causing great 
distress to all African mineral producers. 
 
 
¶16. (SBU) Senior Fellow for U.S. foreign policy Russell Mead 
reminded delegates at South Africa's annual Mining Indaba09 in Cape 
Town that bubbles and crashes have been a consistent part of the 
last 300 years of humanity's progress.  Mead said the current 
financial crisis was caused by large pools of capital, such as those 
held by OPEC, being spent on the expansion of production capacity, 
which far exceeded the respective producer country's own demands. 
Countries like the DRC and Zambia developed large new copper and 
cobalt capacity based on perceived long-term demand from China, 
India, and other countries.  Most of this was not sustainable in the 
short-medium term, he said.  Base metals and diamonds were always 
going to take a knock as the world went into its first global 
recession in decades.  In addition, junior miners in Africa, which 
rely on steady injections of imported venture capital, were also 
going to suffer and a number of them have now disappeared.  Even the 
majors are suffering as a result of top-of-the-market mine 
purchases.  Anglo American failed to produce a final dividend for 
Qpurchases.  Anglo American failed to produce a final dividend for 
the first time since World War II, sold the last of its holding in 
AngloGold Ashanti, and went to the bond market to reduce debt.  On a 
more positive note, Mead said the global slowdown would not be bad 
for the mining sector in the longer term.  It provided an 
opportunity to cool ever rising input costs, dampen speculative 
commodity prices, relieve pressure on suppliers and skills, and 
allow governments space to review mining legislation and policy. 
Finally, mine overcapacity would give a head-start to commodity 
production when demand resumed. 
 
-------------------------------------- 
Vivid Blue Diamond Breaks Price Record 
-------------------------------------- 
 
¶17. (SBU) The vivid blue diamond produced from the Cullinan diamond 
mine in 2007 was sold for $9,488,754 or $1,349,752 per carat.  This 
is a new record price per carat for any gemstone sold at an auction. 
 Petra Diamonds, which recently bought the mine from De Beers, 
announced that the price was also the highest for any blue diamond. 
The diamond is internally flawless,  cushion-shaped, weighs 7.03 
carats, and was sold at Sotheby's Magnificent Jewels auction in 
 
PRETORIA 00001017  006 OF 006 
 
 
Geneva.  The uncut diamond weighed about 39 carats.  The sale price 
exceeded the previous record price of $1,328,444 per carat for a 
6.04 carat fancy vivid blue diamond sold for $7,981,835 in May 2008. 
 Petra Diamond CEO Johan Dippenaar said the price achieved for the 
diamond reflects how rare and collectable such a diamond is to the 
connoisseur.  The Cullinan mine continues to produce some of the 
world's great diamonds, building on its history as the source of the 
most famous Cullinan Diamond, which weighed 3,106 carats and is the 
cornerstone of the British crown jewels. 
 
--------------------------- 
Union Demands 15% Wage Hike 
--------------------------- 
 
¶18. (SBU) South Africa's National Union of Mineworkers (NUM) has 
demanded a 15% wage increase for its members.  This was the initial 
bid at the start of two-year wage talks for the country's gold and 
coal sectors.  In a statement, the NUM said the mines could afford 
with ease the increase, given the country's increased demand for 
coal as well as the significant gold and export coal price increases 
since the last bargaining sessions.  NUM spokesperson Lesiba Seshoka 
said the union would remain firm on its demands. 
 
¶19. (SBU) From industry's point of view, the talks to settle a fresh 
two-year wage agreement face the backdrop of a global economic 
crisis, plummeting commodity demand and  prices, and widespread job 
cuts in the South African mining and metals industry.  NUM has said 
it will take these issues into account.  Revenues for gold and coal 
have increased over the past years, but industry claims that annual 
production cost increases of 25-35% have limited margins, a fact 
that NUM has not considered in their wage demands.  In addition, 
many mines were shut down for a week in January 2008 due to power 
cuts, additional production losses resulted from a 5-10% power 
rationing, and some mines were closed for up to a week following 
fatal accidents.  Other demands made by NUM include; 
-- medical aid to be paid on a 70:30 basis (employer: employee); 
-- minimum basic wage of R5,000 per month ($580) for entry-level 
underground workers; 
-- minimum living-out allowance of R1,500 per month ($175); 
-- home-owner allowance adjustment to R5,000 per month ($580) or 25% 
of the mortgage repayment. 
Note:  The combination of a lower gold price and a strengthening 
rand relative to the dollar has reduced revenue for local miners 
from more than R300,000 per kilogram to less than R250,000 per 
kilogram.  Similarly, the export price of thermal coal has fallen by 
about 50% since September 2008.  End Note. 
La Lime