Gono frees gold but clamps on platinum and diamond producers

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

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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.

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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.

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MINING

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Mining Job Losses

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¶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

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¶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

(48 VIEWS)