VZCZCXRO7284
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #2240/01 3071358
ZNR UUUUU ZZH
R 031358Z NOV 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 0075
INFO RUCPDC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 1035
RUEHBY/AMEMBASSY CANBERRA 0888
RUEHLO/AMEMBASSY LONDON 1799
RUEHMO/AMEMBASSY MOSCOW 1038
RUEHNE/AMEMBASSY NEW DELHI 0635
RUEHOT/AMEMBASSY OTTAWA 0848
RUEHFR/AMEMBASSY PARIS 1648
RUEHSG/AMEMBASSY SANTIAGO 0009
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 06 PRETORIA 002240 
 
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 9, October 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. 
 
¶2. (SBU) CONTENTS: 
 
HOT NEWS 
Eskom welcomes private investors in power expansion 
U.S. support for Pebble Bed Modular Reactor 
Strengthening gold, weakening dollar 
 
ENERGY 
Eskom eyes solar, thermal, gas from coal 
PetroSA to seek Cabinet permission to take 37,5% equity stake in 
$10bn Coega refinery 
Nersa to include small-scale producers soon 
Sasol studying conversion of CO2 into fuel 
India may increase coal imports 
 
MINING 
Mining production down 11.5% in August 
Gold Fields spending $1,15bn to complete mechanized South Deep 
'tonnage factory' 
Xstrata deadline for Anglo American bid 
AngloGold forms marine mining JV with De Beers 
Simmers reduced Buffelsfontein job cuts by 1,100 - union 
 
-------- 
HOT NEWS 
-------- 
 
--------------------------------------------- ------ 
Eskom welcomes private investors in power expansion 
--------------------------------------------- ------ 
 
¶3. (SBU) South Africa's power utility Eskom is keen to have private 
players participate in its expansion projects, but tariffs would 
still need to rise substantially to encourage that investment, an 
official said.  The utility is battling to raise parts of the R385 
billion ($ 53 billion) it needs to pay for new plants and said it 
would rely on an increase in tariffs, borrowings and government 
loans for support.  Eskom has been criticized for fuelling inflation 
by raising electricity prices by as much as 31.3 percent this year 
and 27 percent last year.  The utility has another application 
pending with the regulator, asking for hikes of up to 146 percent. 
"I can't see why someone would come into a business that is selling 
its product at currently between half and two-thirds of the cost," 
Eskom Chairman Bobby Godsell told a recent industry gathering.  Due 
to a government policy of under-pricing power to attract industry 
into the country, South Africa has been cushioned by one of the 
world's cheapest electricity rates, with a kilowatt hour produced by 
the utility costing on average 4.47 U.S. cents.  Godsell said 
independent power producer (IPPs) have so far proposed to generate 
electricity at a cost of between 10 - 16 cents, without taking the 
cost of distribution and transmission into account.  "We have the 
Qcost of distribution and transmission into account.  "We have the 
cheapest electricity in the world, but we just happen today to be 
out of stock," he said.  Eskom has been rationing power since early 
2008 when the country's grid nearly collapsed, forcing mines and 
smelters to shut for days, and costing South African economy 
billions of dollars. 
 
------------------------------------------- 
 
PRETORIA 00002240  002 OF 006 
 
 
U.S. support for Pebble Bed Modular Reactor 
------------------------------------------- 
 
¶4. (SBU) The announcement by the U.S. government that it will 
support South African efforts to research the pebble-bed modular 
reactor (PBMR) nuclear technology signals more direct U.S. interest 
in South Africa's conventional nuclear endeavors.  This interest 
relates to the role of Westinghouse (the U.S. nuclear vendor) within 
what could be a multibillion-dollar, multisite, multi-decade South 
African nuclear build program. 
 
¶5. (SBU) A respected journalist with Engineering News has suggested 
that, until relatively recently, French nuclear vendor Areva 
appeared to have an edge over Westinghouse due to its ties to French 
utility EDF.  EDF is the world's largest operator of nuclear 
facilities and is willing to invest in South Africa's nuclear 
program.  The virtue of the Westinghouse approach lies in the 
longer-term benefits that could flow from the indigenization of 
nuclear design, engineering and manufacturing.  Technology transfer, 
Westinghouse argues, is integral to its business model, despite the 
fact that it ultimately leads to the creation of potential 
competitors, able to design, manufacture and operate 
third-generation PWRs.  For their part, Eskom and government want 
both worlds: they are caught between the need to spread the funding 
risk and the desire to develop a sustainable nuclear industry.  The 
decision is likely to become politicized. Meanwhile Eskom quietly 
continues with preparation processes at three possible nuclear sites 
- Duynefontein (alongside the existing Koeberg nuclear plant, in the 
Western Cape), Bantamsklip (near Pearly Beach, in the Western Cape) 
and Thyspunt (near Oyster Bay, in the Eastern Cape). 
 
¶6. (SBU) Officially, any US support for the PBMR following on from 
the agreement will fall under the so-called next-generation nuclear 
plant (NGNP) project, which is seeking to "commercialize a new 
generation of advanced, passively safe, modular nuclear plants such 
as the PBMR that use high-temperature gas reactor technology".  In 
fact, Westinghouse, the Shaw Group and the PBMR Company are jointly 
promoting the PBMR under the NGNP scheme and are seeking a project 
appropriation of $200 million for the 2010 financial year under the 
program.  PBMR spokesperson Tom Ferreira has confirmed that under 
the recently signed bilateral nuclear agreement, there is the 
potential for direct funding from the US Department of Energy under 
the NGNP. 
 
------------------------------------ 
Strengthening gold, weakening dollar 
------------------------------------ 
 
¶7. (SBU) The gold price surged to a record $1,045/oz high in New 
York on Tuesday 6 October 2009.  Analysts believe this is a reaction 
to concern about US inflation and a weakening dollar spurring demand 
for the metal as an alternative investment.  The higher gold price 
is good news for SA's gold mines, struggling with rand strength, 
Qis good news for SA's gold mines, struggling with rand strength, 
rising costs, such as for labor and electricity, and falling ore 
grades.  The JSE index of gold mines shot up 6.7 percent, with 
AngloGold Ashanti up 6 percent, Gold Fields up 7.4 percent and 
Harmony rising 7.5 percent.  Higher inflation traditionally erodes 
the value of the dollar against other currencies, causing the prices 
of commodities to rise as investors use these investments as an 
alternative store of wealth.  The price of Brent crude oil rose as 
much as 2.3 percent to $69.52 a barrel. Copper, an indicator of 
industrial activity, rose 2.7 percent in London.  A further 
potential contributor to dollar weakening was a report by Britain's 
Independent newspaper that Arab states, China, Russia, and France 
had secretly discussed replacing the dollar as the currency 
denominating in oil trades. 
 
------ 
ENERGY 
------ 
 
---------------------------------------- 
 
PRETORIA 00002240  003 OF 006 
 
 
Eskom eyes solar, thermal, gas from coal 
---------------------------------------- 
 
 
¶8. (SBU) Eskom's Managing Director for Corporate Services Steve 
Lennon said projects would take shape next year.  "You will be 
seeing the timing of big renewables, the timing of nuclear, you will 
be seeing more certainty on under-ground coal gasification ... first 
quarter next year you will see a lot of things come together," 
Lennon said in an interview.  He said Eskom was designing a 42 
megawatt pilot plant to test a technology to gasify deep coal 
deposits underground and feed the gas into a combined cycle gas 
turbine.  It then plans to scale up the project to a 2,100 MW plant. 
 "Probably by the end of 2011 that gas pilot will be up and running, 
which means that a full-scale plant, everything going well, could be 
running around 2015-16," he said. 
 
--------------------------------------------- --- 
PetroSA to seek Cabinet permission to take 37,5% 
equity stake in $10bn Coega refinery 
--------------------------------------------- --- 
 
¶9. (SBU) South Africa's national oil company PetroSA will submit a 
recommendation to the Department of Energy during October requesting 
that it be allowed to retain a non-controlling 37,5 percent equity 
position in a proposed new $10 billion, 400,000 bl/d, crude oil 
refinery.  The State-owned group has completed the technical 
feasibility study for the project, which it is proposing for 
construction at the Coega industrial development zone, landside of 
the country's newest deep-water harbor, the port of Ngqura, in the 
Eastern Cape.  The commissioning of the refinery is scheduled for 
¶2015.  Should Cabinet approve PetroSA's ownership model by December, 
the group's next move would be to finalize its front-end engineering 
design for the Coega refinery by March 2010 - setting out the 
technical design of the plant and the types of material it would 
process. 
 
¶10. (SBU) The plant would probably be designed to convert so-called 
"heavy sour" material, found predominantly in parts of the Middle 
East and South America, into diesel and petrol.  However, it was 
also possible that "sweeter" crude from Angola could be blended into 
the final mix, with PetroSA hoping to secure supply contracts in 
tranches of 100,000 barrels or more.  Wherever possible, PetroSA 
would also seek to conclude deals giving it ownership over the crude 
inputs, and the recent joint-venture-agreement (JV) with Venezuela's 
PDVSA offered some indication as to the type of deal being pursued. 
Earlier in October, PetroSA and PDVSA announced the creation of a 
joint venture to exploit a mature oilfield in the South American 
country.  Some $400 million could be invested over four years to 
extract oil from the fields in the Venezuelan state of Anzoategui. 
PetroSA announced plans to invest $10 million within the next 6 
months to finalize the technical studies, and should the JV succeed, 
production of 30,000 bl/d is possible within the next 24 months. 
Qproduction of 30,000 bl/d is possible within the next 24 months. 
 
¶11. (SBU) PetroSA and the Coega Development Corporation (CDC) signed 
a co-operation agreement for the planned Coega oil refinery on 6 
October 2009.  The agreement clarified the roles and 
responsibilities of the parties in the Coega Industrial Development 
Zone (IDZ) during the construction and operation of the refinery, 
PetroSA's president and CEO Sipho Mkhize said.  The refinery would 
generate close to 27,500 temporary jobs during the construction 
phase and 18,500 permanent direct, indirect and induced jobs once 
operational. 
 
------------------------------------------- 
Nersa to include small-scale producers soon 
------------------------------------------- 
 
¶12. (SBU) Small-scale producers of renewable energy - those 
producing less than 1 megawatt - may be included in the next phase 
of the renewable energy feed-in tariff (Refit) published by the 
National Energy Regulator of SA (Nersa).  Nersa's regulator member 
 
PRETORIA 00002240  004 OF 006 
 
 
for electricity Thembani Bukula said that small-scale producers were 
likely to be included in Refit's third phase, due in about six 
months.  Small-scale producers do not necessarily aim to feed energy 
into the national electricity grid, as substantial amounts of their 
power may be lost in the transmission process.  In many cases they 
would rather use this electricity for their own production processes 
or supply it directly to closely situated industries.  Refit 
currently excludes off-grid power generation. 
 
------------------------------------------ 
Sasol studying conversion of CO2 into fuel 
------------------------------------------ 
 
¶13. (SBU) South Africa's coal-to-liquids company, Sasol, is studying 
the conversion of carbon dioxide (CO2) into fuel.  Engineers and 
scientists in Sasol's technology division are working on algaeic 
forms of methanol production.  This follows the Singapore's 
Institute of Bioengineering and Nanotechnology's (IBN's) report of a 
CO2-to-methanol breakthrough earlier this year.  IBN announced that 
they had succeeded in unlocking the potential of carbon 
dioxide - a common greenhouse gas - by converting it 
into a more useful product.  Using organocatalysts, the 
IBN researchers activated carbon dioxide in a mild and 
non-toxic process to produce methanol, a widely used 
industrial feedstock and clean-burning biofuel.  Sasol produces 
large volumes of CO2 in the production of synthetic transport fuels 
from coal at its plant in Secunda and is committed to reducing its 
CO2 footprint through the introduction of greater production 
efficiencies, carbon capture and storage and through innovations 
such as methanol production from algae. 
 
------------------------------- 
India may increase coal imports 
------------------------------- 
 
¶14. (SBU) India may increase imports of coal from 57 to 60 million 
metric tons in the year ending March compared with last year. 
According to a Coal India director, N.C. Jha, the company's annual 
production may increase to 435 million tons this year from 403.7 
million tons last year.  The state-owned company is seeking mines in 
the US, Australia, South Africa and Indonesia and may invest as much 
as $1.5 billion for acquisitions to help address supply needed to 
almost double its power generation capacity by 2012.  The company 
estimates a shortage of about 228 million tons a year of coal by 
March 2012.  Coal India has secured two blocks in Mozambique that 
may hold a combined 1 billion metric tons of thermal coal along with 
some coking coal.  India 's coal demand is estimated to reach 731 
million tons a year by March 2012. 
 
------ 
MINING 
------ 
 
-------------------------------------- 
Mining production down 11.5% in August 
-------------------------------------- 
 
¶15. (SBU) Mining production for August 2009 decreased by 11.5 
percent compared with August 2008, reflected by a 12.7 percent 
decrease in the production of non-gold minerals and a 2.9 percent 
Qdecrease in the production of non-gold minerals and a 2.9 percent 
decrease in the production of gold, according to Statistics South 
Africa (Stat SA).  Seasonally adjusted mining production increased 
by 2.6 percent in the three months to August 2009 compared with the 
previous three months, Stat SA said.  This is the fourth consecutive 
quarter-on-quarter increase since April 2009, it said.  Platinum 
group metal (PGM) production was the main contributor (1.7 
percentage points) to the 2.6 percent increase.  Seasonally adjusted 
mining production decreased by 5.8 percent month-on-month in August 
¶2009.  PGM production was the main contributor (-4.3 percentage 
points) to this decrease.  The total mining production for the three 
months ended August 2009 decreased by 4.5 percent compared with the 
three months ended August 2008. 
 
PRETORIA 00002240  005 OF 006 
 
 
 
---------------------------------------- 
Gold Fields spending $1,15bn to complete 
mechanized South Deep 'tonnage factory' 
---------------------------------------- 
 
¶16. (SBU) JSE-listed gold major Gold Fields announced that it would 
be spending R8,5 billion ($1.15 billion) to complete its 
50-year-life mechanized South Deep mine.  The R8,5 billion would be 
spent to 2014, when South Deep would be producing gold at a rate of 
750,000 oz a year.  The mine employs 4,500 people, whereas 
similar-sized conventional labor-intensive deep-level South African 
gold mine employs about 10,000 people.  Gold Fields reports 
employees of the mechanized mine are compensated at higher levels of 
pay, with high-performing drill rig operators taking home up to 
R50,000 ($6,800) a month. 
 
¶17. (SBU) South Deep, a total departure from South Africa's 
conventional narrow-vein gold mine with 30 meter tall ore bodies, is 
the world's first mechanized deep-level gold mine with the world's 
deepest hoisting shaft to 3,000 meters.  Gold Fields is introducing 
special safety-support measures for the scale and nature of the 
large excavations.  According to the company these measures have 
resulted in a 66 percent reduction in serious injuries and a 
lost-day injury rate improvement of 71 percent. 
 
--------------------------------------- 
Xstrata deadline for Anglo American bid 
--------------------------------------- 
 
 
¶18. (SBU) Diversified miner Xstrata has until 17:00 on October 20 to 
announce a firm intention to make an offer for Anglo American or to 
walk away, the UK Takeover Panel has announced.  If Xstrata 
announces that it does not intend to make an offer for Anglo 
American, it will be restricted from making an offer for Anglo for 
six months. Anglo American has rejected the proposed merger saying 
that it would not be in the shareholders best interests.  Anglo had 
noted in earlier statements that a merger with Xstrata would 
"profoundly impact [on] the nature of the group's portfolio by 
significantly diluting Anglo American's unique exposure to the 
structurally attractive platinum, iron-ore and diamond markets, 
while increasing exposure to nickel and zinc".  Anglo American 
controls the world's biggest platinum-miner, Anglo Platinum, and 
holds a 45 percent stake in diamond giant De Beers, as well as 
almost 70 percent of South African iron-ore producer Kumba Iron Ore. 
 Mining analysts believe that would make sense for Xstrata to make a 
formal, but realistic, bid for Anglo American before the deadline 
closes.  Xstrata could, however, opt to buy Lonmin (the world's 
third largest platinum producer). 
 
--------------------------------------------- - 
AngloGold forms marine mining JV with De Beers 
--------------------------------------------- - 
 
¶19. (SBU) JSE-listed gold-miner AngloGold Ashanti and diamond giant 
De Beers have announced the formation of a joint venture (JV) to 
explore for gold and other minerals in the ocean.  The JV would 
Qexplore for gold and other minerals in the ocean.  The JV would 
initially focus on exploration, but would ultimately mine marine 
deposits on the continental shelf.  De Beers have developed certain 
skills, expertise and proprietary technology in relation to the 
exploration and mining of marine deposits on the continental shelf. 
AngloGold have one of the world's most successful gold exploration 
teams. 
 
¶20. (SBU) The establishment of this JV allows AngloGold Ashanti 
"first-mover advantage" of the opportunity of partnering with a 
world leader in the field of marine exploration and mining. 
AngloGold Ashanti and De Beers will establish a jointly-owned 
technical services company (Techco), which they intend to develop 
into a fully-functional marine exploration and mining services 
company.  Techno will host all the skills, expertise and further 
 
PRETORIA 00002240  006 OF 006 
 
 
proprietary technology that might be developed or acquired within 
the JV.  AngloGold Ashanti will sole fund the JV and Techco until 
the completion of an initial exploration period of at least three 
consecutive sampling seasons, or until the gold-miner had funded a 
total amount of $40 million. 
 
---------------------------------- 
Simmers reduced Buffelsfontein job 
cuts by 1,100 - union 
---------------------------------- 
 
¶21. (SBU) JSE-listed Simmer & Jack Mines (Simmers) has been able to 
limit retrenchments at its Buffelsfontein mine, in the North West 
province, to about 1,400 job losses, 1,100 less than initially 
expected, trade union Solidarity reported on Tuesday.  The union 
said that the Section 189 consultation process at the mine has not 
yet been finalized and that the gold-miner could still 
"significantly reduce" the number of retrenchments.  Solidarity 
spokesperson Jaco Kleynhans said that Simmers CEO Gordon Miller had 
recently indicated in a management report that Buffelsfontein's risk 
profile should soon improve significantly, as the incorporation of 
the newly-acquired Tau Lekoa mine could lead to a doubling in 
production.  South African gold major AngloGold Ashanti agreed to 
sell the Tau Lekoa mine to Simmers for R600 million ($81 million) in 
February 2009.  The Competition Commission, in September, approved 
the merger of the two mines. 
 
¶22. (SBU) Meanwhile, Solidarity said it believed that the current 
problems between Simmers and its Black Economic Empowerment (BEE) 
partner, Vulisango, could have negative consequences for the group 
and Buffelsfontein.  After its shareholding was diluted to 22 
percent through various capital raising exercises, Vulisango has 
demanded that Simmers restore its interest in the company to 26 
percent. 
 
GIPS