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Cablegate: South Africa: Minerals and Energy Newsletter "the Assay" -

DE RUEHSA #4188/01 3471013
R 131013Z DEC 07





E.O. 12958: N/A
SUBJECT: South Africa: Minerals and Energy Newsletter "THE ASSAY" -
Issue 11B, November 16-30, 2007

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.

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2. (SBU) 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.

- 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.


NECSA Moots Second Reactor at Pelindaba

3. (SBU) The Nuclear Energy Corporation of South Africa (NECSA) has
been identified by the SAG as the lead agency to develop the
country's nuclear industry, including research and development into
nuclear fuel and enrichment facilities. As a first step in the
process, NECSA CEO Rob Adam, says the company is considering
building a second nuclear reactor at its Pelindaba site in the North
West Province, just west of Pretoria. This would be a companion to
the existing Safari 1 reactor, which was built in the 1960's and is
the country's oldest reactor. Safari 1 is the world's third largest
producer of nuclear medical isotopes, including molybdenum 99.
NECSA is developing processes that will shift its reliance on highly
enriched uranium (95% U235 or weapons grade) to commercializing the
use of lesser-enriched uranium (about 5% U235 or the level required
to run nuclear power stations) to produce medical isotopes. The
second reactor would be used to expand NECSA's commercial isotope

NECSA Reactor Site Experiences Break-in

4. (SBU) Concerns about the security systems at NECSA were raised
last month when two groups of robbers attempted to break through the
security fence surrounding the Pelindaba nuclear complex. One group
succeeded in getting into a security control room and snatched a
computer, which they later abandoned. The significance of the
information contained in this computer is not known. The motive for
Qinformation contained in this computer is not known. The motive for
the break-in is under investigation as is the possible role of six

PRETORIA 00004188 002 OF 004

security officials who have been suspended. Pelindaba is accorded
national key-point security status, and is aiming to upgrade its
human and technical systems to meet this classification.


Rockwell Diamond Sells for a Record Price

5. (SBU) Rockwell Diamonds, listed on both the Toronto and
Johannesburg stock exchanges, achieved a company record selling
price of $145,000 a carat for a flawless and intensely pink 7.28
carat diamond. The total price for the diamond was $1,054 million.
The diamond was recovered from Rockwell's Holpan operation, located
north of Kimberley in the Northern Cape Province where it mines
alluvial and gravel deposits. Rockwell has four or five alluvial
diamond operations and projects in South Africa and the average
price obtained from all its operations was a very high $1,640 per
carat. The company says that pink diamonds are exceptionally rare
and the only source known to produce such stones with some
regularity is the Argyle Diamond Mine in Western Australia.
Rockwell CEO John Bristow said the recovery of a pink diamond was
particularly exciting as it indicated the potential for exceptional
rarity, quality and value of diamonds recovered from their unique
Northern Cape alluvial diamond deposits.

6. (SBU) Diamond production from alluvial river deposits in South
Africa has always been the "poor cousin" of primary kimberlite,
marine terrace and off-shore marine deposits. The past decade has
seen increasing interest by smaller- scale operators in ancient
alluvial river deposits. Numerous new and rehabilitated operations
have been started up by both local and foreign junior companies and
the quality and size of stones recovered has been exceptional high.
According to geological theory, diamonds eroded from kimberlite
sources in the Kimberley area were washed down river systems and
deposited in the sea over millions of years. A combination of
reworking by ocean currents and changes in sea level relative to the
land resulted in the formation of beach terrace and marine deposits.
A better understanding of the depositional environment of these
alluvial deposits, new exploration technology and large
cost-efficient equipment has enabled their profitable exploitation
in recent years.


Mineworkers Stage a One-Day Safety Strike

7. (SBU) The incident in which 3,200 miners were trapped
underground, but ultimately rescued unharmed, at Harmony's
Elandsrand mine last month, focused the spotlight on increased
fatalities in South African mines. The annual death toll had
reached 201 by the end of November 2007 compared to 199 for 2006.
In response, some 240,000 members of South Africa's biggest union,
the National Union of Mineworkers (NUM), staged a one-day strike on
December 4 to protest what they claim are deteriorating safety
conditions in mines.
Qconditions in mines.

8. (SBU) In 2003, mining industry stakeholders committed to
improving safety in South African mines to the safety level of
overseas operations. The mutually-agreed-upon target was to
decrease the number of mine fatalities by 20% per year. This
reduction has not been achieved and the NUM blames poor safety
procedures by management and accuses them of putting profits before
safety. The Department of Minerals and Energy, under pressure from
the SAG and NUM, have instituted an investigation procedure that
immediately closes mines at which fatalities occur. Industry
representatives argue that such closures exacerbate, rather than
improve, safety conditions as deep mines require continuous
attention at new working faces to maintain safe roof conditions.

PRETORIA 00004188 003 OF 004

9. (SBU) The strike, compounded by mine closures, has caused mining
companies substantial output losses. At Anglo Platinum the one-day
strike had an almost 100% stay-away and the company reported an
expected loss of about 9,000 ounces of production. AngloGold
Ashanti, South Africa's top gold producer, reported that there was
no production from any of its South African operations on December
4. All mines were significantly affected by the strike but all
operations were back to normal operation the following day.

10. (SBU) AngloGold Ashanti later said that aggressive tactics such
as strikes and mine closures would focus attention and hopefully get
stakeholders to work together, but it would not solve the problems.
They believe that the causes of accidents include skills shortages,
the rapid growth of the mining industry due to the commodities boom
and the impact of HIV/AIDS. Finally, the company noted that it
would take time to move people through the training ranks "no matter
how much money is thrown at the problem". (Comment. The
approximately 200 mine-related fatalities per year should be put in
the context of more than 15,000 fatal accidents on the roads and
10,000 murders committed each year. The relatively recent concern
about mine accidents by both government and labor also coincides
with next week's ANC-party Congress where labor will be pushing for
stronger representation in the next ANC-lead government. End


Big Steel Producers Back into Mining

11. (SBU) Spurred on by rising prices and the need to secure raw
inputs, backward integration into mining is again heating up and
some of the world's large steel producers have entered the race for
mining projects to feed their steel plants. Tata Steel, one of
India's largest companies and the world's sixth largest steel
producer, has signed a joint venture agreement with Australia's
Riversdale Mining to develop a hard coking and thermal coal project
on Riversdale's Benga and Tete prospects in Mozambique. Tata is to
pay $90 million to acquire a 35% interest in the project and a 40%
share of the coking coal for its global steel plants. The resource
estimate for Benga is 1.23 billion tons of coal of which 720 million
tons is potentially mineable by open-pit methods.

12. (SBU) In other backward integration deals, ArcelorMittal, the
world's largest steel producer, has announced joint venture deals
for coking-coal in Mozambique and manganese in South Africa. Both
will be inputs for the company's global steel plants. In
Mozambique, Arcelor will buy a 35% share in Black Gold Mining's coal
licenses for $2.5 million. These licenses cover some 49,360 hectares
of the Moatize-Minjova sub-basin in the Tete Province, which sits on
huge coal deposits located close to those being developed by
Brazil's Companhia Vale do Rio Doce (CVRD).

13. (SBU) Arcelor has also signed a memorandum of cooperation with
the Mozambican government to develop both the local mining and
Qthe Mozambican government to develop both the local mining and
steel. In South Africa, Arcelor has signed a $600 million
partnership with South Africa's Kalagadi Manganese. The 50:50 joint
venture will see the development of a manganese mine, a
beneficiation plant and a sinter complex in the Northern Cape
Province and a ferromanganese smelter in the Eastern Cape. Ninety
per cent of manganese is consumed in producing manganese ferroalloys
and iron and steel. South Africa has an estimated 80% of the
world's known manganese resources.


U.S. Company in Eastern Cape Power Project

PRETORIA 00004188 004 OF 004

14. (SBU) Eskom, the state-owned power utility, has warned that
South Africa needs to adapt to rolling power disruptions and
power-shedding over the next five years until power generation and
distribution shortages and issues are overcome. In an attempt to
facilitate new supply, the SAG invited independent power producers
(IPPs) to build 30% of new generation capacity. Independent power
plant developer Ipsa was awarded a contract to build a 500 megawatt
coal-fired plant in Indwe in the Eastern Cape using coal from one of
the country's oldest coal fields.

15. (SBU) Ipsa, a London-listed company, has already developed an 18
megawatt combined heat and power plant in Newcastle in KwaZulu-Natal
and is working on a 1,600 megawatt combined cycle gas turbine power
plant at Coega in the Eastern Cape. The company plans to fast-track
the first 250 megawatts to bring new capacity on line for the
Eastern and Western Cape provinces as swiftly as possible. To
achieve this, IPSA sold 50% of its Elitheni Clean Coal (ECC)
subsidiary that is developing the project to Exodus Africa for
$5-million. Exodus Africa is a US-based company focused on
developing and operating energy assets in Africa. A number of its
senior managers were formerly with Enron, the US energy company that
collapsed. Project coal resources are estimated at 40 million
tons, based on drilling results covering only 7% of the lease area.


--------------------------------------------- -
U.S. Company Preferred Bidder for Diesel Locos
--------------------------------------------- -

16. (SBU) South Africa's rail transport system has been losing out
to road transport for many years. Poor management and operational
systems have led to escalating costs, declining efficiency, and
weakening competitiveness except perhaps on the two dedicated coal
and iron ore lines. Another major problem has been the lack of
modern rolling stock and locomotives. The latter problem has been
addressed by state-owned transport company Transnet's ordering of
404 diesel and electric locomotives - to be increased to 500
shortly. Electromotive Diesel (EMD) of the US has been designated
as the preferred bidder to supply Transnet with 212 diesel
locomotives for use mainly for the general freight business (GFB).
Commercial discussions between Transnet and EMD should be concluded
before year end, according to Transnet CEO Maria Ramos.

17. (SBU) Ramos said the acquisition of the locomotives would form a
significant part of the $5.1-billion, five-year recapitalization of
Transnet Freight Rail (formerly Spoornet), which is the largest
consumer of the group's $12-billion investment budget for rail,
ports, and pipelines. The final cost estimate for the locos is
still to be negotiated. Also being negotiated is EMD's localization
commitment to develop a local presence in South Africa. EMD appears
keen to build physical capacity in the region to take advantage of
the opportunities available in South Africa and the region. Ramos
agreed that the real growth impetus for Transnet would come once the
Qagreed that the real growth impetus for Transnet would come once the
new diesel locomotives were fully deployed and the 110 electric
locomotives for the coal line and the 32 locomotives for the
iron-ore line were fully operational.


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