VZCZCXRO3967
RR RUEHBZ RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHDU #0118/01 3571134
ZNR UUUUU ZZH
R 231134Z DEC 09
FM AMCONSUL DURBAN
TO RUEHC/SECSTATE WASHDC 1530
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHSA/AMEMBASSY PRETORIA 0711
RUEHDU/AMCONSUL DURBAN 0912

UNCLAS SECTION 01 OF 03 DURBAN 000118 
 
SENSITIVE 
SIPDIS 
 
FOR AF/S, ISN, EEB/ESC AND CBA, AND OES/EGC 
DOE FOR T.SPERL, G.PERSON, A.BIENAWSKI, M.SCOTT, L.PARKER 
DOC FOR ITA/DIEMOND 
 
E.O. 12958: N/A 
TAGS: EMIN ENRG EPET EINV ETRD ECON SENV SF
SUBJECT: RICHARDS BAY'S HEAVY MINERAL INDUSTRY 
 
REF: A) 05 DURBAN 00019; B) 09 PRETORIA 2498 
 
DURBAN 00000118  001.2 OF 003 
 
 
¶1.  (U) Embassy Minerals and Energy Officer and Specialist, and 
Consulate Pol/Econ Officer, visited Richards Bay Minerals and 
Exxaro's KZN Sands in Richards Bay, KwaZulu-Natal (KZN) on 
November 17 and 18.  This cable is a collaboration between 
Embassy Pretoria and Consulate Durban. 
 
¶2.  (SBU) SUMMARY:  Experienced titanium and zircon producer and 
mineral sands mining company, Richards Bay Minerals (RBM), is a 
robust operator that looks set to out-compete its local rival 
Exxaro KZN Sands and survive the 2008-2009 global recession. 
RBM's challenges of increasing electricity tariffs, social 
responsibility, and a difficult market for its "lifestyle" 
products are offset by a highly experienced management team, a 
well refined mining and beneficiation process, industry leading 
rehabilitation practices, and a sound social and labor plan. 
Unlike Exxaro KZN Sands (EKZNS), who have only two years of 
mineral reserves and a less reliable beneficiation process, RBM 
is supported by its Rio Tinto and BHP Billiton joint ownership. 
Subsequent to the visit, on December 1, Exxaro the holding 
company of EKZNS, announced their intention to curtail its 
mineral sands operations in favor of a focus on coal.  Such 
action is likely to impact negatively on employment and social 
welfare projects in the surrounding communities, free up power 
and, possibly, provide an acquisition opportunity for RBM.  End 
Summary. 
 
Mining Heavy Mineral Sands from Dunes 
 
¶3.  (U) Richards Bay Minerals (RBM) and Exxaro KZN Sands (EKZNS) 
compete for the recovery of ilmenite, rutile and zircon from 
coastal dune deposits around Empangeni and Richards Bay in 
northern KZN.  RBM excavates 33 million tons run of mine (ROM) 
annually from beach dunes along a 60km strip along the KZN north 
coast (made up of mineral leases: Zulti North, Tisand, and Zulti 
South).  EKZNS is about one fifth the size of RBM, with a six 
million ton annual ROM from inland, historic dunes at Hillendale 
mine, south of Empangeni. 
 
Lifestyle Dependent Market  - Sun Screen and More 
 
 
¶4.  (SBU) Ilmenite, rutile and zircon make up about five percent 
volume of KZN's heavy mineral sands and yield titanium dioxide 
(TiO2), pig iron, and zircon, used in a wide variety of 
lifestyle and industrial products.  TiO2 pigment accounts for 
about 94 percent of world demand for titanium; three percent is 
used to produce titanium metals and metal alloys.  The pigment 
is ultra white, highly refractive and non-toxic, making it 
sought after for use in: paint, plastics, pharmaceuticals 
(toothpastes, sun screens, and cosmetics) and candy.  Titanium 
metal is used in the aerospace industry for its high 
strength-to-weight ratio.  Zircon is used in the production of 
ceramics, refractories, jewellery and electronics, and high 
purity pig iron is used for ductile iron castings such as engine 
blocks.  South Africa is ranked second behind Australia for TiO2 
production and supplies about 20 percent of world demand.  RBM 
holds the largest market share with an annual production of one 
million tons of titanium slag (containing about 85 percent TiO2) 
and 525,000 tons of iron.  Comparatively, Exxaro produces 
250,000 tons of titanium slag and 50,000 tons of iron. 
 
Dig, Separate, Smelt, Ship 
 
¶5.  (SBU) Titanium, iron and zircon beneficiation is achieved 
through a process of: bulk dune mining, gravity assisted 
concentration of the heavy minerals, magnetic and electrostatic 
separation, and smelting.  RBM and EKZNS work slightly different 
deposits and this affects the way they mine and rehabilitate. 
RBM reserves comprise a more recent series of coastal barrier 
dunes along the KZN north coast.  They create a large artificial 
freshwater pond in the dunes and use this to float dredgers and 
a concentrator plant.  As the mining face of the dune collapses 
into the pond, dredgers suck up the slurry and pump it to a 
floating concentrator.  At this point, the heavy minerals are 
separated from the sand using a gravity process and stockpiled 
as heavy mineral concentrate (HMC) for transportation to the 
smelter site.  The pond moves parallel to the sea, as the mining 
operation proceeds.  Smelting separates heavier pig iron matte; 
which is tapped, cast and shipped, and lighter titanium slag, 
which is tapped, cast and crushed to customer specifications. 
EKZNS mines older, clay rich deposits that are more labor 
intensive, requiring man-held hydraulic "guns" to collapse the 
dune and create a slurry-feed to a land-based concentrator 
 
DURBAN 00000118  002.2 OF 003 
 
 
plant.  While EXZNS's processing technique is similar to RBM's, 
EXZNS employs new direct current-arc smelting technology as 
opposed to RBM's more reliable "six-in-line" alternating current 
smelter. 
 
Rehabilitation 
 
¶6.  (SBU) Both KZN operators are required by legislation to 
rehabilitate their lease areas to a condition "similar to that 
which existed prior to mining."  This mandate is far more 
complicated for RBM, which is required to, in part, reinstate 
the ecologically sensitive coastal dune system.  RBM is a local 
industry leader in the field, rehabilitating one third of their 
mined out lease with indigenous coastal dune forest and two 
thirds with Beefwood for a local charcoal industry.  The complex 
coastal dune forest is restored through a "successional growth" 
process (starting with cereals, grassland and then acacia 
shrubland) and requires about 30 years to reach maturity.  They 
leave the 200-meter dune cordon adjacent to the beach untouched, 
ensuring a "reservoir" from which seed and animal colonization 
can take place.  EKZNS is required to restore sugar cane farming 
in their comparatively simpler rehabilitation program.  They 
achieve this by resculpting the original dune topography, 
covering this with remixed clay (or "slimes") and sand, 
pioneering with a year's growth of Rhodes grass, and replanting 
carefully selected sugar cane strains.  The Embassy/Consulate 
team witnessed pristine-looking 30-year growth in one area that 
had undergone the RBM rehabilitation process. 
 
Social Responsibility 
 
 
¶7.  (U) Both operators are vital "providers" for the Richards 
Bay and Empangeni regional economy, a relatively poor area in 
South Africa.  Their challenge and social responsibility is to 
implement plans that ensure economic growth continues post 
mining.  Both RBM and EKZNS invest significantly in community 
development, education and healthcare; business development, and 
promotion of black economic empowerment. 
 
Employees 
 
¶8.  (SBU) EKZNS, with an efficiency of 8,500 tons per employee 
(per annum), is a far more labor intensive operation than RBM 
with 20,000.  RBM has a permanent complement of 1700 employees 
and about 1000 contractors.  The company estimates that 70 
percent of the workforce is historically disadvantaged South 
Africans (HDSA) and 10 percent is female.  By comparison EKZNS 
has a permanent workforce of 700, of which 80 percent is HDSA 
and 13 percent is female, and 300 contractors.  Both operators 
estimate that about 75 percent of their employees have 
voluntarily tested for HIV/AIDS and that the prevalence is about 
19 percent.  This is lower than the general prevalence in the 
area, reflecting greater education in their skilled workforces. 
They both provide antiretroviral treatment (ARV) to the affected 
employees and their immediate families. 
 
Challenges 
 
¶9. (SBU) Cost and availability of power, increasing poverty 
levels in surrounding and affected communities, and difficult 
market conditions are the key challenges currently facing the 
heavy minerals mining firms.  The uncertainty over the future 
cost of electricity affects production planning.  RBM is storing 
equipment for the cogeneration of smelter power in the event 
that the tariff increases to above a "break-even" price of 9.25c 
(US cents) per kilowatt hour; it is currently 4.51c.  Both 
producers estimate that electricity accounts for 25 percent of 
their cost basket.  RBM and EKZNS are both active in programs 
aimed at reducing poverty, but are struggling to overcome the 
impact of HIV/AIDS, lack of entrepreneurship, poor education 
levels, and population growth in their surrounding communities. 
RBM has been less affected by the 2008-2009 global economic 
downturn than EKZNS, as it has strong marketing links through 
Rio Tinto Iron and Titanium and long-term contracts for exported 
product.  Both producers benefit from being within a 30km rail 
trip to Richards Bay's bulk-handing harbor.  EKZNS appears to be 
struggling with sales and - at the time of the visit - had a 
20,000-ton stockpile of unsold product. 
 
Strategic Outlook: Business as Usual versus "On Edge" 
 
¶10.  (SBU) The two mineral sands operators present significantly 
different strategic futures.  RBM has a remaining life of mine 
 
DURBAN 00000118  003.2 OF 003 
 
 
(LOM) of about 20 years, a well tested and refined recovery 
process, and is owned by diversified majors (Rio Tinto and BHP 
Billiton) that are committed to these commodities.  EKZNS has a 
2 year LOM, a relatively untested recovery process, and is owned 
by Exxaro, which is focused on expanding coal mining concerns. 
Without its new potential "Fairbreeze" resources located about 
20km south of the Hillendale Mine (which have yet to be proved 
as reserves), an improved TiO2 and pig iron market and a renewed 
commitment from its holding company, EKZNS is likely to be 
closed in 5 years.  In fact, subsequent to our visit, Exxaro 
announced its intention to focus on coal and close the EKZNS 
operations in five years. 
 
Comment 
 
¶11.  (SBU) RBM and EKZNS are important contributors to the local 
economy of the Richard's Bay area and as such, electricity 
tariff hikes and the closure of EKZNS's Hillendale Mine are 
likely to have a significantly negative impact on the region. 
The curtailing of mining operations could see EKZNS withdraw 
from its social responsibilities, with an impact on jobs, 
healthcare and education in affected communities.  The impact on 
the environment will probably be less severe, with the mine on 
track with its closure and rehabilitation plans.  The closure of 
EKZNS's processing plant is likely to free up power availability 
for other local industries.  These assets (primarily the 
concentrator and smelter) together with the "Fairbreeze" mineral 
resources may represent a useful and cheap acquisition for RBM. 
The announcement of the closure constitutes a "fire-sale" with 
few other likely buyers.  If EKZNS chooses to mothball its 
operations, the maintenance costs in a corrosive coastal climate 
are likely to be high. 
 
Gips 
DERDERIANJ