Central bank governor Gideon Gono announced in his latest monetary policy statement that the Reserve Bank of Zimbabwe was allowing gold producers to sell their own bullion.
But at the same time he revoked the concession allowing platinum and diamond miners to keep offshore foreign currency accounts saying they should hold accounts with local banks.
Gono also liberalised the foreign exchange rates and removed most of the limits on withdrawals and announced that people could not freely trade in foreign currency though the Zimbabwe dollar would continue to be in circulation.
Gold output had plummeted from 6.8 tonnes in 2007 to 3.1 tonnes in 2008.
Full cable:
Viewing cable 09PRETORIA309, South Africa: Minerals and Energy Newsletter “THE ASSAY” –
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SUBJECT: South Africa: Minerals and Energy Newsletter “THE ASSAY” –
Issue 1, January, 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
——–
—————————————–
Harmony Sensitive to Power Price Increase
—————————————–
¶2. (SBU) Harmony Gold Mining Company, Africa’s third-largest
producer of gold, said an increase of more than 30% in power tariffs
in South Africa would cause the company to reconsider its deep
mining operations. The company has budgeted for a rise of 20% this
year by the state-owned power utility Eskom, said Harmony’s CEO
Graham Briggs in an interview in Johannesburg.
——
ENERGY
——
——————————————-
General Electric Does Deals in South Africa
——————————————-
¶3. (SBU) Power generation technology supplier GE Energy announced a
$50 million deal to upgrade old steam turbines at synthetic fuels
producer Sasol. The announcement follows a 15-year service
agreement signed in November by the two companies that provides for
installation and maintenance of gas turbines at Sasol’s Secunda
plant, aiming to increase power efficiency and produce power from
otherwise flared methane (also targeting Kyoto-related Clean
Development Mechanism credits). GE Transportation announced that it
had also been awarded a contract by Anglo Platinum to provide 26
emergency diesel generators for its mining operations, providing up
to 15.4 MW back up capacity at individual mines. Middle East and
Africa CEO Nabil Habayeb, who was speaking at the “GE Day” in
Johannesburg, was bullish on business in South Africa and Africa,
and said he was comfortable with the alignment of the business to
Africa’s key growth sectors, particularly infrastructure, including
energy, water, and transport. GE remained sanguine about Africa’s
growth potential and touted not a single order cancellation across
the continent as a consequence of the economic slowdown.
———–
MINE SAFETY
———–
———————————–
President’s Safety Audit Shows Gaps
———————————–
¶4. (SBU) South Africa’s Minister of Minerals and Energy Buyelwa
Sonjica released the long-awaited national Mine Safety Audit on
February 2, ordered by past President Thabo Mbeki to investigate
QFebruary 2, ordered by past President Thabo Mbeki to investigate
compliance with safety regulations in mines across all sectors.
Buyelwa said the audits indicated a number of gaps in the safety
standards in the mining industry. She called on stakeholders to
take the findings and recommendations very seriously. The average
compliance across all sectors was identified as 66%, with gold mines
PRETORIA 00000309 002 OF 004
earning highest compliance. Critical issues were mine design, shaft
installation and maintenance, communication systems, backup power,
secondary outlets, safety risk management, health risk management,
and training. The ministry said stakeholders would have two weeks
to analyze the report and make plans to implement the
recommendations. Mbeki ordered the safety audit in 2007, after
3,200 workers were trapped underground at Harmony Gold’s Elandsrand
mine.
¶5. (SBU) Chamber of Mines Senior Executive Dr Frans Barker in a
media interview said safety had played a role in the relatively poor
production performance of the gold mines through voluntary and
forced closures following serious accidents. Leaders of industry
decided safety was a priority and a number of companies had made
significant improvements in safety standards, training, and
monitoring. Gold Fields lost revenue of more than $300 million over
the past 18 months (equivalent to more than 250,000 ounces of gold)
as a result of safety stoppages and measures to improve its safety
record, mainly in South Africa. Implementation of safe measures
contributed to the relatively positive score gold mines received in
the President’s report. Mining CEO’s have committed to eliminating
fatal accidents by 2013 and a number of shafts have been shut to
allow for safety audits and maintenance. Barker said the depth at
which gold is mined in South Africa was also a factor contributing
to accidents and the industry was looking at more cooperative
research in health and safety. Barker said the industry had already
started to implement some of the recommendations in the report. He
said one of the most important recommendations was the need to
instill a culture of safety throughout the industry and to make
greater use of full-time occupational health and safety
representatives.
——
MINING
——
—————–
Mining Job Losses
—————–
¶6. (SBU) The mining industry has shed more than 10,000 jobs since
the end of December, according to the National Union of Mineworkers.
The unions list of layoffs include 1,417 at DRDGold’s marginal East
Rand Proprietary Mines (ERPM); 1,800 at the Everest platinum mine in
Mpumalanga; 1,500 at Gold Field’s mines; and 1,550 at Lonmin
Platinum in Limpopo. The Anglo American Group has indicated its
intention to cut its workforce by 10,000 and Rio Tinto plans to
layoff some 14,000 workers from its global operations, but only a
small number will likely come from its South Africa operations.
Many miners are still cautiously optimistic about a commodity upturn
later in 2009 and are reluctant to loose skilled and experienced
workers. The Department of Minerals and Energy mining task team has
urged mining companies to refrain from dismissing contract workers
with only a 24-hour notice period. Since its inception in December,
the task team has urged mining companies to view retrenchments as a
Qthe task team has urged mining companies to view retrenchments as a
last resort and to only take such actions in full compliance with
the country’s labor law and mining companies’ social and labor
commitments under licensing.
——————————-
China Looks to African Minerals
——————————-
¶7. (SBU) Chinese investment continues to flow into Africa,
especially in the minerals and metals sectors. Chinese businessmen
are taking a long-term view and pursuing strategic expansion in
Africa even though China’s investments on the continent have slowed
due to the global downturn. The Beijing government and Chinese
companies have pledged tens of billions of dollars to Africa in
loans and investments, mostly to secure raw materials for its still
fast-growing economy (albeit at a slower rate). Its long-term
PRETORIA 00000309 003 OF 004
strategic interest appears intact, despite the sharp decline in
Africa’s mineral shipments to China. China-Africa trade has grown
by an average of 30% a year this decade, increasing to nearly $107
billion in 2008. Former U.S. Ambassador to Ethiopia and Burkina
Faso David Shinn said China is in Africa for the long term.
¶8. (SBU) Chinese and Indian firms have expressed interest in taking
over Zambia’s top cobalt producer Luanshya Copper Mines since it
halted operations in December, according to Zambian state media.
South Africa’s Standard Bank is itself 20% owned by the Industrial
and Commercial Bank of China (ICBC). Standard Bank’s head of mining
and metals Thys Terblanche, said they were advising Chinese mining
clients on buying opportunities in Africa and elsewhere. He said
Chinese companies believe 2009 is likely to present buying
opportunities. Apart from mining, Chinese state companies are also
pushing ahead with strategic investments in energy and
infrastructure. The former Chinese Ambassador to the DRC and
Central African Republic (CAR) told a China-Africa trade forum that
some Western countries were reducing investment in Africa because of
the financial crisis, which presented Chinese businesses with
opportunities to expand their investment and market share in Africa.
Trade with Angola, China’s biggest source of African crude oil,
reached $25.3 billion in 2007 and Beijing has offered Luanda $5
billion in oil-backed loans. (Note: At the recent Mining Indaba,
state-owned Chinese company Chinalco struck a $20 billion deal to
purchase a share of mining giant Rio Tinto. End Note.).
————————————–
South Africa Gold Drops to Third Place
————————————–
¶9. (SBU) London-based precious metals consultancy GFMS said South
Africa dropped to third place as a world gold producer in 2008,
after its biggest drop in output since the Anglo-Boer War in 1901.
The country dominated gold production for more than a century, but
has seen output decline as mines became deeper and more costly to
operate. Mines had to shut down for a week in January 2008 because
of electricity blackouts, followed by power rationing of 5-10%.
South Africa is now number three behind China and the United States,
Gold Fields Mineral Services (GFMS) said in its 2008 Gold Survey.
China became number one in 2007 when its production rose to 276 tons
against South Africa’s 272 tons. South Africa’s gold production
fell by 14% in 2008, to about 234 tons. South Africa produced 1,000
tons of gold at its peak in 1970, but has been on a terminal decline
since. Global gold production in 2008 fell to its lowest level
since 1995 due to technical issues, skill shortages, power
constraints, and a weakening global economy that made project
financing difficult.
————————————
Zambia Abolishes Windfall Mining Tax
————————————
¶10. (SBU) At the height of the copper/cobalt boom, the GRZ imposed a
Q10. (SBU) At the height of the copper/cobalt boom, the GRZ imposed a
number of new fiscal demands on mining companies. A number of
mining projects have since been put on hold because of weakening
commodity prices, spurring the GRZ to subsequently lessen the impact
of the new taxes. Zambia is Africa’s top copper producer and
depends on copper and cobalt for more than 63% of government
revenues and foreign exchange earnings. Copper production in 2008
rose 3.7% to 569 891 tons and cobalt production rose 19.5% to 5,275
tons.
¶11. (SBU) Following consultation with the mining sector, Zambia’s
Finance Minister Situmbeko Musokotwane announced the government
would abolish the windfall tax to cushion the copper mining industry
from weak prices. Musokotwane said he proposed to retain the 15%
variable tax, which would still capture any windfall gains that may
arise in the sector, but he would cut the import duty on heavy fuel
oils from 30% to 15% and remove the customs duty on copper powder,
copper flakes, and copper blisters. He said these measures would
reduce the operating costs of mining companies as well as encourage
PRETORIA 00000309 004 OF 004
the utilization of local smelting capacity. The move is seen as
part of efforts to save jobs. Zambia’s Luanshya Copper Mines (LCM)
laid off almost all of its 1,740 miners after halting operations in
November. Foreign mining firms operating in Zambia include Canada’s
First Quantum Minerals, Australia’s Equinox Minerals, Swiss firm
Glencore International, and London-listed Vedanta Resources.
——————————————— ——
ZIMBABWE – Gold Wins but Platinum and Diamonds Lose
——————————————— ——
¶12. (SBU) Zimbabwe’s Reserve Bank announced it would allow gold
producers to sell their own bullion after gold output slumped by
more than 50% in 2008. Gold now contributes less than one-third of
Zimbabwe’s export earnings since the collapse of commercial
agriculture. Reserve Bank Governor Gideon Gono announced in his
monetary policy statement that gold production fell from 6,798
kilograms in 2007 to a low of 3,072 kilograms in 2008, mainly due to
non-payment by the Reserve Bank for gold purchases, rising
production costs, frequent power cuts, and equipment shortages.
Gono said the Reserve Bank would allow miners to retain 92.5% of
their gold earnings in line with other exporters, in order to
reverse the decline in gold production. The remainder would be sold
to the Reserve Bank at a market-determined exchange rate. However,
he revoked the concession allowing platinum and diamond miners to
keep offshore foreign currency accounts, ordering that accounts be
held in local banks, and he announced increased Reserve Bank control
over the marketing of platinum and diamonds.
¶13. (SBU) Miners have struggled to contend with a severe economic
crisis that includes the highest inflation rate in the world —
officially reckoned to have been in the millions over seven months
ago — and foreign currency shortages, which have forced most mines
to cease operations. In addition, the Reserve Bank, which has been
the sole marketer of gold, owes the gold miners millions of dollars.
Gono said funds owed to miners for previous deliveries would be
converted into special foreign currency bonds, payable after 12
months. He also urged the government to amend empowerment laws that
were of concern to foreign investors. Zimbabwe passed an
empowerment law in 2008 seeking to transfer majority control of all
foreign firms to local blacks, but has yet to implement this law.
La Lime
(25 VIEWS)
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