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Cablegate: South Africa: Minerals and Energy Newsletter

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 05 PRETORIA 002754

SIPDIS

STATE PLEASE PASS USAID
STATE PLEASE PASS USGS

E.O. 12958: N/A
TAGS: EPET ENRG EINV EIND ETRD ECON SF
SUBJECT: South Africa: Minerals and Energy Newsletter
"THE ASSAY" - Issue 6, June 2005

REF: A) PRETORIA 3049, B) PRETORIA 2998

This cable is not for Internet distribution.

1. (U) Introduction: The purpose of this monthly
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.

---
Key
---
2. (U) Key to some of the terminology and abbreviations
used is given to facilitate understanding.

BEE (Black Economic Empowerment) - the scheme whereby the
South African Government promotes black participation in
business.

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- t = tons,
- t/d = tons per day,
- c/l = cents per liter,
- t/m = tons per month,
- t/y = tons per year,
- oz = troy ounces (31.1 grams),
- cmg = centimeter grams,
- mcf = million cubic feet,
- tcf = trillion cubic feet,
- R = SA currency (rand),
- MW = megawatts,
- kt = thousand tons,
- bbl/d = barrels per day,
- MW = megawatts,
- PGM = platinum group metals.

----------
HOT ISSUES
----------

New Minister of Minerals and Energy
-----------------------------------
3. (U) On June 22, President Thabo Mbeki appointed
Lindiwe Hendricks, the former South African Deputy
Minister of Trade and Industry (DTI), Minister of
Minerals and Energy (DME) following the appointment of
Phumzile Mlambo-Ngcuka as Deputy President. These
changes resulted from the dismissal of Jacob Zuma, the
former Deputy President. An attorney by training, Ms.
Hendricks served as Deputy Minister of Trade and Industry
to Minister Alec Erwin from 1999 until April 2004, and
thereafter to Minister of Trade and Industry Mandisi
Mpahlwa. As Deputy Minister of DTI, she worked to
improve export competitiveness, access to new markets,
and to support the development of new technologies. She
also promoted mining-related activities such as
beneficiation, small-scale mining, and women in mining.
Her legal background may be valuable for implementing the
mineral rights conversion process required by the new
Petroleum and Mineral Resources Development Act.

Minister's Advisory Board Launched
----------------------------------
4. (U) On June 18, the new Minister of Minerals and
Energy, Lindiwe Hendricks, officially launched the
Minerals and Mining Development Board. Established under
Section 57 of the Mineral and Petroleum Resources
Development Act the Board will advise the Minister on
matters referred to it under the Act, such as sustainable
development of the country's mineral resources, black
economic empowerment, industry job losses, and dispute
resolution surrounding the award of permits or licenses.
The Board must promote human resource development in
consultation with the Mining Qualifications Authority,
and may report on any matter relating to the application
or objectives of the Act. Appointed by the Minister, the
Board's members must reflect the gender and racial
composition of the country as well as hail from labor,
business, government, and civil society. A total of
sixteen members have been appointed. The Chairperson is
Sandile Nogxina, Director General of the Department of
Minerals and Energy (DME). Other Board members include:
May Hermanus, Chief Inspector of Mines; Abe Mngomezulu,
Deputy Director General, Mineral Policy and Investment
Promotion; Con Fauconnier, President of the SA Chamber of
Mines and CEO of Kumba Resources; Bridgette Radebe,
Chairperson of the SA Mining Development Association and
CEO of Mmakau Mining; Mzolisi Diliza, CEO of the SA
Chamber of Mines; Jan Bredell, previous Director General
of DME; and Nchaka Moloi, previous advisor to the
Minister of Minerals and Energy.

------
MINING
------

South African Non-Gold Mining Booms
-----------------------------------
5. (U) Non-gold mining production rose by 12.6% year-on-
year (y/y) in April, but gold mining production fell by
16.3% y/y, resulting in total mining production rising by
7.1% y/y. The plunge in gold mining was due to
industrial action at three of the largest mines, as well
as to seismic activity in the NW mining area. In terms
of individual minerals and ores, y/y growth in diamonds
was 33.5%, chrome 20%, iron ore 17.6%, copper 12.4%
manganese 6.5% and PGMs 5.4%. The remaining metallic
minerals showed an average 27% y/y growth. For the non-
metallics, steam coal y/y output grew 10.9%, building
materials by 6.6%, and the bulk remainder such as clays,
asbestos, and refractory minerals averaged 56% growth.
Cement sales rose by 8.1% y/y to 1.016 million tons in
May, after a 28% y/y rise to 971,600 tons in April. This
brought the year-to-date increase to 11.1% y/y compared
to 2004's 17.3% surge. Sales in May were the first since
November 2004 to exceed 1 million tons in one month.
Analysts believe this level should be the norm for the
rest of the year. Except for gold, high dollar prices
for exported commodities and the country's growing
economy and high local housing prices make the outlook
for South Africa's mineral economy buoyant as long as the
rand does not strengthen vis--vis the dollar, to impact
export revenues in rands.

--------
IRON ORE
--------

Anglo American Wins Some, Loses Some
------------------------------------
6. (U) London-based Anglo American, the second largest
diversified resource company in the world after BHP-
Billiton of Australia, is striving to become a leading
iron ore exporter. After much political wrangling with
South Africa's Industrial Development Corporation (a
South African investment parastatal), Anglo finally
managed to buy 67% of Kumba Resources in 2003. However,
the government conditioned the sale on limiting Anglo
American's ownership to 49% to create an opportunity for
an 18% equity ownership for BEE firms. Anglo American is
talking with prospective BEE partners interested in
purchasing the 18% now. Kumba's Sishen iron ore mine,
located in the Northern Cape, is one of ten major iron
ore deposits in the world. The mine produces 29 million
tons of high-grade ore per year and exports 21 million
tons through the Saldanha Bay port via the dedicated Orex
rail line operated by Spoornet, the South African
Government-owned parastatal.

7. (U) Interestingly, Anglo American's purchase of Kumba
may result in the loss of an important international
asset. Prior to Anglo American's takeover of Kumba,
Kumba had entered into a 49/51 agreement with Hancock
Prospecting (Australia) to develop the $1.5 billion Hope
Downs iron ore project in Western Australia. The
promising project would have added 50% to Kumba's global
iron ore production. However, Kumba's agreement with
Hancock stipulated that, should Kumba experience a change
of ownership control, Hancock could buy back Kumba's 49%
share in Hope Downs. Anglo's purchase of a 67% share of
Kumba triggered this option, and now Hancock appears
determined to exercise it. Anglo American went to
arbitration to try to stop Hancock, but lost. Hancock's
must pay $113 million to Kumba by July 1, 2005 and $85
million by July 1, 2006 to complete the repurchase. Only
if Hancock fails to meet these deadlines will Anglo
American's position as a world player in the iron ore
market be assured. With BHP-Billiton, CVRD of Brazil,
and Rio Tinto lurking behind the scenes, no one is
betting that this will happen.
--------
DIAMONDS
--------

De Beers Steps Out: Fifth Avenue Style
--------------------------------------
8. (U) The first De Beers LV (De Beers' joint venture
with Louis Vuitton Moet Hennessy) luxury goods store
opened on Fifth Avenue on June 22 to both applause and
boos from a motley crowd. The opening was De Beers' (the
world's largest producer of rough diamonds) first step to
doing business directly in the United States in more than
50 years, having faced antitrust cases since 1945. To
pave the way to doing direct business in the United
States, De Beers pleaded guilty in federal court last
year to price-fixing and paid the maximum fine of $10
million. Media reports said that the 30 hecklers accused
De Beers and the Government of Botswana of complicity in
the "cultural genocide" of the San people. This is
because the government had recently evicted a San
community from living and hunting in a section of a
national game park, a potential diamond mining area. De
Beers and the Government of Botswana participate equally
in Debswana, a 50/50 joint venture to mine Botwana's
diamond resources.

De Beers Exports Scanning Technology
------------------------------------
9. (U) The September 2004 issue of The ASSAY reported on
the De Beers' fast x-ray scanner, called the Lodox
Statscan. The scanner, developed for diamond detection
and analysis, found an important niche in the medical
field as a fast, affordable, and safe digital x-ray
machine. Currently, ten systems are operational in the
United States and three in South Africa. Subsequent to
the report in the September issue, trauma centers in
Sudan ordered four Statscan machines - two were delivered
and staff training is underway - and one by Dubai. A
hospital in the United Arab Emirates purchased one
machine. Lodox's Marketing Executive Rodney Sandwith
said that he expected sales to triple next year and to
double every year thereafter. He believed there were
excellent prospects in North Africa and in some of the
larger African countries, such as Nigeria. Sandwith
added that the opportunities in southern Africa were more
limited as many of the countries were less inclined or
able to purchase state-of-the-art equipment.

New Life for Kimberley: The Diamond Capital
-------------------------------------------
10. (U) Kimberley, the diamond city where it all began in
1871, continues to hold her own 134 years later.
Kimberley mines recorded its highest level of production
(2,050,627 carats) in 91 years, increasing output by 95%
(nearly a million carats) year-on-year from 2003 to 2004.
The bulk (90%) of this outstanding performance came from
the Combined Treatment Plant built to process the waste
(obviously diamondiferous) dumps that dot the area, a
legacy of the early days. In South Africa, Kimberley
production was second only to De Beers' Venetia diamond-
mine in the Limpopo province, which produced 52% of the
record 13.7 million carats produced by the seven De Beers
Consolidated Mines' (DBCM) South African operations. The
target for 2004 is 14 million carats. "It is our
intention to be mining in Kimberley for as long as I'm
around," said Jonathan Oppenheimer, the 35 year-old
Managing Director of DBCM and heir to the De Beers
fortune. These results have breathed new life into both
DBCM and the City of Kimberley, where De Beers is
investing $8 million over three years to redevelop the
Big Hole (see picture on title page) into a world-class
tourism facility by 2008.

--------------
INFRASTRUCTURE
--------------

Focus on Spoornet - Spending Plans
----------------------------------
11. (U) For decades Spoornet, the South African Government-
owned rail parastatal, has underperformed operationally and
financially. This has severely impacted bulk mineral
exports and export growth, which have fled to privately-
owned road transport. In an attempt to revitalize Spoornet,
Transnet (the parastatal transport holding company) CEO
Maria Ramos appointed Siyabonga Gama as the new CEO of
Spoornet (the fourth in the past six years). Gama's task is
to implement a turn-around plan aimed at making Spoornet a
more efficient service provider and more financially viable.
Gama said that he is confident that Spoornet's 5-year
infrastructure spending program will stabilize the company
and reverse the current flow of business to road transport.
The spending program is part of Minister for Public
Enterprises Alec Erwin's $7.8 billion capital expenditure
plan for Transnet. Spoornet's cut is $2.5 billion, of which
Gama plans to spend $600 million on infrastructure and $1
billion each on new locomotives and on upgrading older
locomotives and wagons. Gama wants to double annual revenue
to $5.6 billion by 2010 by growing Spoornet's market in the
following areas:
-- coal by 15% to 86 mt per year;
-- general freight by 82% to 160 mt per year;
-- iron-ore by 28% to 41 mt per year;

-----------
OIL AND GAS
-----------

ChevronTexaco and SASOL Team up in Nigeria
------------------------------------------
12. (U) The long-delayed multibillion-dollar gas-to-
liquids (GTL) project in Nigeria looks set to move ahead.
On April 8, ChevronTexaco (Nigeria), a subsidiary of
ChevronTexaco Corp, awarded a $1.7 billion engineering,
design and procurement contract for the Escravos gas-to-
liquids (EGTL) project to Team JKS, a consortium composed
of JGC Corporation of Japan, KBR and Snamprogretti.
Chevron Nigeria owns 75% of the project, with Nigerian
National Petroleum Corporation holding 25%. SASOL, South
Africa's oil-from-coal producer, will supply its
proprietary technology to the project for a licensing fee
and provide 50% of the risk-based finance. The plant
will produce 34,000 barrels a day of liquid fuels
including diesel, naphtha, and a small amount of
liquefied petroleum gas.

13. (U) A SASOL spokesperson said the project would
provide a major boost to the development of diesel from
gas, which was "set to revolutionize the performance of
diesel technology and improve air quality by reducing
vehicle emissions". The project would significantly
reduce gas flaring from oil recovery operations.
Moreover, gas-to-liquid diesel is low in aromatics and
almost sulfur-free. ChevronTexaco-SASOL's first
commercial gas-to-liquids plant in Qatar should come on
line early next year. The group was also considering
opportunities to build gas-to-liquids plants in Iran and
Australia, among other countries.

SASOL Signs MOU for Plant in Pennsylvania
-----------------------------------------
14. (U) On April 18, WMPI (Waste Management and
Processors Inc.) announced the signing of a Memorandum of
Understanding (MOU) with SASOL for the construction of a
coal gasification-based liquid fuels production facility
near Gilberton, Pennsylvania. Under the MOU, WMPI and
SASOL will, subject to a number of conditions, commence
negotiations for the use of SASOL's Fischer-Tropsch
technology. The Gilberton Integrated Fuels Plant will be
a demonstration facility that will reclaim and process
1.4 million tons per year of waste anthracite coal to
produce 5,034 barrels per day of ultra-clean
transportation liquid fuel and 41 MW of electricity for
sale. Successful start-up and operation of this facility
may lead to larger-scale commercial plants with 10-12
times the capacity. The United States Department of
Energy (DOE) and the National Energy Technology
Laboratory (NETL) under the Clean Coal Power Initiate
(CCPI) will sponsor the waste-coal-to-clean-liquids
project. The WMPI Project team includes:
-- Shell Global Solutions - supplier of gasification
technology;
-- Uhde GmbH - Germany-based global engineering,
procurement and construction (EPC) contractor for
Shell's Coal Gasification Process (SCGP) technology;
-- SASOL - Fischer-Tropsch Liquefaction technology
provider;
-- Nexant, Inc. - owner's engineer;
-- ChevronTexaco Products Company - work-up technology
provider.

SASOL to Explore in Mozambican Waters
-------------------------------------
15. (U) On June 1, SASOL announced that it had signed an
agreement to explore for gas in an 11,000 square kilometers
area off the Mozambican coast. The area is directly
offshore of the Pande gasfield that supplies SASOL's
chemical, fuels, and gas operations in South Africa. The
exploration and production concession contract was signed in
Maputo by SASOL Petroleum International and the Mozambican
Ministry of Mineral Resources. The investment vehicle is
SASOL Petroleum Sofala Limitada, a wholly owned SASOL
subsidiary, in which SASOL holds an 85% interest, and
Empresa Nacional de Hydrocarbonetas, the Mozambican
parastatal holds 15%. The agreement is subject to final
approval by the Mozambican Cabinet.

South Africa's Integrated Oil and Gas Company
---------------------------------------------
16. (U) On May 12, the Competition Commission conditionally
approved the merger between SASOL, South Africa's synthetic
fuels and chemical company, and Malaysian national petroleum
corporation Petronas (majority owner of Engen), subject to
further investigation by the Competition Tribunal. The new
entity, Uhambo Oil, would be owned 37.5% each by SASOL and
Petronas, and 25% by their black economic empowerment
partners: Tshwarisano LFB Investment and Afric Energy
Resources. If approved by the Competition Tribunal, Uhambo
Oil would control 55% of the country's refining capacity and
40% of the inland retail market. The merger was opposed by
the other oil companies which have no inland refining
capacity and fear that Uhambo might cease supplying them in
Gauteng and other important markets. However, the
Competition Commission made its approval conditional on
Uhambo continuing to supply petroleum products to these
companies until completion of the new $500 million petroleum
pipeline from Durban to Johannesburg in 2010. The
Competition Tribunal hearings are set for October 3 to 20.
FRAZER

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