South Africa’s IDC was keen to invest in Zimbabwe

The head of South Africa’s Industrial Development Corporation’s Mining Strategic Business Unit Abel Malinga said the IDC and other private mining companies were looking at investing in Zimbabwe but were being hampered by lack of a political settlement in the country.

Malinga said Zimbabwe had coking coal reserves of about 50 billion tonnes as well as known reserves of gold, platinum, iron ore, chrome, tin, lithium, copper, zinc and nickel.

He said investment would, however, depend on a positive outcome to the power-sharing talks between Robert Mugabe and his ZANU-PF party and Morgan Tsvangirai and his Movement for Democratic Change.

One of the IDC’s policy requirements was that investments must be covered for political risk, but not even the South African government-backed Export Credit Insurance Corporation was able to offer this cover.

Full cable:

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SUBJECT: South Africa: Minerals and Energy Newsletter “THE ASSAY” –

Issue 12, October, 2008

PRETORIA 00002556 001.2 OF 005

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

——–

——————————————

Fire Closes Engen Refinery – Fuel Imported

——————————————

¶2. (SBU) Some Engen fuel refiner and retailer will import refined

oil and oil products after a fire caused by a mechanical problem

destroyed the main processing unit at its South African crude oil

refinery in Durban, the country’s second largest. Engen said the

135,000 barrels-per-day refinery would be shut for months of

repairs caused by a fire on November 12. A spokesman said the fire

destroyed 50,000 liters of crude and the shutdown would force it to

import refined oil and oil products for the period of closure.

Engen is South Africa’s biggest supplier of oil and related products

with a market share of about 26%. Engen is 80% owned by Malaysia’s

state firm Petronas and the rest is held by South African

black-owned Worldwide African Investment Holdings empowerment group.

This is the second fire to affect the Engen refinery this year.

The first fire was caused by lightning and destroyed a refined

products storage tank. The refinery General Manager Willem

Oosthuizen said the company would sustain a daily financial loss of

more than $600,000 each day it remains closed.

———————————-

Fire Closes Anglo Platinum Smelter

———————————-

¶3. (SBU) Anglo Platinum confirmed that a fire had occurred at its

Polokwane platinum smelter, located in the northern Limpopo Province

of South Africa, on November 5. A furnace run-out occurred in the

morning causing hot matte to come into contact with rain water. The

smelter will be shut down for about six weeks at an estimated loss

to Anglo of 150,000-200,000 ounces of refined platinum. A statement

by Anglo says that their remaining smelting and refining capacity is

fully committed and that losses associated with the shut down would

not be recovered during 2008, but only during the first half of

¶2009. At current platinum prices of about $820 per ounce, loss of

export earnings would amount to $123-164 million or less than 2% of

total PGM revenues and 0.5% of total mineral revenues.

————————–

U.S. Soda Ash Cartel Fined

————————–

¶4. (SBU) The South African Competition Commission has claimed

Q4. (SBU) The South African Competition Commission has claimed

victory in a nine-year old dispute with the U.S. industry body the

American Natural Soda Ash Corporation

(Ansac), according to media reports. Ansac represents four major

U.S. producers of soda ash and was accused of organizing an export

cartel in the South African market. U.S. law allows such a body to

operate in markets outside the U.S., but is prohibited from

operating in the U.S. as this would contravene U.S. anti-trust laws.

Ansac has effectively admitted fixing prices on soda ash by

eliminated price competition between its members in exports sales in

contravention of the South African Competition Act. Ansac has

agreed to withdraw from the Southern African market and allow its

members to operate individually in South Africa. Its settlement

with the commission brings to an end the longest-running case in the

commission’s history. Ansac will pay a nominal $1 million fine,

equal to 8% of its annual turnover in South Africa. It also agreed

PRETORIA 00002556 002 OF 005

to pay the legal expenses of Botswana soda ash producer Botswana Ash

(Botash), which brought the initial complaint. Ansac’s legal team

opines that its withdrawal from the South African market is

strategic and cannot be construed as an admission of anticompetitive

behavior. South African experts believe Ansac was let off lightly

and that the judgment failed to distinguish between the actions of

an illegal cartel and those of a legitimate joint venture.

——

MINING

——

—————————————–

Falling Commodity Prices Knock SA Revenue

—————————————–

¶5. (SBU) South Africa is facing falling commodity prices and

decreasing global demand for its minerals and processed downstream

products. South African gold output fell 17.7% in volume terms,

while overall mineral production was down 3.5%, in September

compared to the same month in the previous year, according to

Statistics South Africa. Global steelmaker ArcelorMittal has

announced a 30% production cutback at its local steel plants, in

line with cutbacks at its facilities worldwide. However, Anglo

American’s Kumba Iron Ore claims that it will not curb its

high-quality ore production, unlike other global producers like

Brazil’s Vale which announced cutbacks of 10-20% in response to

lower Chinese demand. Kumba has said it intends to continue with

its 13 million tons per year expansion plans according to schedule.

Ferro-chrome producers are facing significant cutbacks and the

world’s biggest producers, Xstrata-Merafe and Samancor have already

announced cutbacks of 30% and 50%, respectively. An analyst has

calculated that ferro-chrome and iron ore reductions alone could

reduce South Africa’s export revenues by $6 billion per annum,

equivalent to losing more than one month’s exports. He notes that

the affect on South Africa’s current account will be somewhat

mitigated by reduced cost of oil imports and reduced demand for

other imports. Power demand should also decrease.

———————————-

Mine Job Losses at Lonmin Platinum

———————————-

¶6. (SBU) The world’s third-largest platinum mining firm Lonmin plans

to close some of its South African platinum mines and halt two key

projects because of a 64% fall in the platinum price since March.

This would result in as many as 21,000 layoffs of people employed by

or dependent on income from platinum mining. Standard Bank

economist Johan Botha said each worker in the mining industry has an

average of eight dependents and each job in mining provides at least

12 jobs upstream in supplier industries such as power, water, and

mining equipment. He also said further jobs would be lost in the

downstream markets that used platinum group metals (PGMs) produced

by Lonmin. Econometrix Treasury Management economist George Glynos

said the cuts would reduce employment in rural areas near the

company’s mines and this would have a disastrous socio-economic

impact in some regions. The closures compound the unemployment

situation in the wake of recent cuts by major producers of steel,

Qsituation in the wake of recent cuts by major producers of steel,

iron ore, and ferrochrome. The platinum industry generated $10.5

billion revenue in 2007 and employed 186,410 workers.

——————————-

Disruptions Cut Platinum Output

——————————-

¶7. (SBU) South Africa’s platinum export earnings will be constrained

by a decline in output this year to a five-year low of 4.78 million

ounces. This is due to power cuts, safety issues, mine flooding,

smelter problems, skills shortages, labor stoppages and other

factors, according to UK refiner and catalytic converter maker

Johnson Matthey (JM). JM forecast that: the world platinum market

would be 240,000 ounces short this year, mainly due to falling South

African output; that global supply would fall 4.2% to 6.28 million

ounces; and that demand would dip 2.3% to 6.52 million ounces. JM

also forecast Russian platinum production to decline by 855,000

PRETORIA 00002556 003 OF 005

ounces this year and North American and Zimbabwean output to rise.

Demand for platinum used in automotive catalytic converters was

forecast to grow by 85,000 ounces to 4.23 million ounces this year,

driven by increasing use of platinum in diesel vehicles in Europe

and growing vehicle output in China and other developing nations.

North American demand for platinum was expected to fall by 305,000

ounces as vehicle production is being curtailed in that region. The

net purchase of new metal by jewelry manufacturers was forecast to

fall by 340,000 ounces to 1.12 million ounces.

————————————

DRC Copper Plant Construction Halted

————————————

¶8. (SBU) Copper-miner Anvil Mining has suspended construction at its

Kinsevere Stage II solvent extraction/electro-winning (SX/EW) plant

in the DRC until the company arranges additional funding and the

global financial and commodity markets stabilize. Copper and cobalt

prices have plummeted some 50% and 66%, respectively, since

September and the company faces a “difficult” financial position,

said an Anvil official. He said there is limited availability of

debt finance for mining companies in the current environment.

Nevertheless, the company was in discussion with a number of

possible lenders and expected that debt finance could be available

in the first half of 2009. In the meantime, Anvil plans to curtail

all but essential capital spending. Anvil posted a net loss for the

third quarter of $17.3 million, compared to a profit of $39.1

million for the same quarter in the previous year. Concentrate sales

for the quarter declined 44% year-on-year to $42.3 million, due to

operational difficulties.

———————————-

Six Ferro-Alloy Furnaces Shut Down

———————————-

¶9. (SBU) The world’s largest ferrochrome producer Xstrata-Merafe

Resources joint venture halted six of its ferrochrome furnaces in

South Africa, in reaction to slowing global demand that has also

forced a 30% cut in steel production. The six furnaces represent

500,000 tons or 29% of its annual ferrochrome production.

Ferrochrome is used mainly in the production of stainless steel.

Xstrata said these measures were temporary and it expected to

redeploy personnel within its operations. Xstrata also announced

that the closures of the highest-cost furnaces would result in

energy savings of 300-400 MW of power, thereby contributing to

easing the power crisis. This represents about 10% of Eskom’s

savings reduction target, or close to 1% of total production

capacity.

—————————————

Titanium Designated a Strategic Mineral

—————————————

¶10. (SBU) South Africa is the second biggest producer of titanium,

after Australia, and hosts the second largest reserves of titanium

minerals, after China. South African titanium concentrates are

produced at two operations mining extensive beach sands located

along the east coast in Kwazulu/Natal and along the west coast north

of Saldanha Bay. A new mine, Xolobeni, located on the southern

Qof Saldanha Bay. A new mine, Xolobeni, located on the southern

coast of the Eastern Cape, is currently under negotiation. The SAG

has designated titanium strategic to economic development because of

its unique industrial properties around which it intends to develop

an industry – from ore to pigment, metal, and manufactured products.

The Department of Science and Technology’s (DST) Advanced Metals

Initiative group organized a conference November 18-20 to promote

R&D, innovation, technology, and skills in titanium and other “new”

metals such as zirconium, hafnium, and tantalum.

¶11. (SBU) Some 94% of titanium minerals are converted to pigment

because of its opacity, inertness and non-toxicity, which gives

“whiteness” to paint, plastics, and paper and confidence in use in

foods and pharmaceuticals (tooth-pastes, sun-screens, and

cosmetics). Approximately 5% is converted to metal, which has a

high strength-to-weight ratio, exhibits corrosion-resistance, has

high-temperature heat strength, and is consumed primarily in the

commercial and military aerospace industries and for artificial

PRETORIA 00002556 004.2 OF 005

prostheses. Chamber of Mines Economist Roger Baxter pointed out in

the opening address that South Africa should be cautious when

embarking on an added-value initiative. He said that manufacturing

differed from mining in that it depended on policies, skills, and

technology, rather than natural mineral endowment, to provide a

competitive advantage in the global market. Moreover, South Africa

has a major shortage of skills throughout the economy.

———————————–

SA Gold Miner Closes Zimbabwe Mines

———————————–

¶12. (SBU) Zimbabwe’s biggest gold miner Metallon Gold, owned by

South African mining entrepreneur Mzi Khumalo, has been forced to

close its five gold mines because the Reserve Bank of Zimbabwe has

not paid for the $20 million worth of gold delivered to it, as

required by law. The Bank owes the gold sector a total of some $30

million dating back to 2007, and this has crippled the industry’s

ability to continue operations. In an economic climate where

interest rates are 9,500 percent and the official inflation rate is

230-million percent, borrowing money is not a viable option and

foreign investment has all but dried up. Metallon produced about

55% of Zimbabwe’s gold output in 2007 and its closure will result in

the loss of 3,500 jobs in a country where unemployment is already

more than 80%. Zimbabwe’s annual gold production has plummeted from

27 tons in 1999 to the current annualized 3.2 tons as a result of

power cuts, lack of foreign exchange, and the exodus of skilled

expatriates. Zimbabwe was Africa’s third biggest gold producer

after South Africa and Ghana until 2000. It has since been

surpassed by Tanzania and Mali, which enjoy political and

investor-friendly environments.

¶13. (SBU) On a more positive note, South African government-owned

Industrial Development Corporation (IDC) Mining Strategic Business

Unit (SBU) Head Abel Malinga said the IDC along with some private

mining companies is considering investing in mining projects in

Zimbabwe. Malinga estimates Zimbabwe’s coking coal reserves to be

50 billion tons, comparable in size to the trans-South

Africa/Botswana-border steam coal reserves of the Waterberg

coalfield. In addition, Zimbabwe has known, under-developed

reserves of gold, platinum, iron ore, chrome, tin, lithium, copper,

zinc and nickel. However, their exploitation will depend on a

positive outcome to the power-sharing talks between Robert Mugabe

and his Zanu-PF party and Morgan Tsvangirai and his Movement for

Democratic Change (MDC). The MDC won the country’s March 2008

primary elections and withdrew from the subsequent run-off election

under protest. An IDC policy requirement is that investments must

be covered for political risk, but not even the SAG-backed Export

Credit Insurance Corporation is able to offer this cover, Malinga

said.

——

ENERGY

——

——————————

Possible Nuclear Program Delay

——————————

¶14. (SBU) The decision to select a successful bidder and proceed

Q14. (SBU) The decision to select a successful bidder and proceed

with South Africa’s nuclear build program seems certain to again be

postponed, after being postponed twice already this year. The

problem revolves around raising money to pay for the system under

the current turbulent economic climate, made worse by the

downgrading of the investment standing of state-owned power producer

Eskom. Moody’s Investors Service recently downgraded Eskom to a

Baa2, its second-lowest investment grade. Department of Minerals

and Energy (DME) Acting DDG of Hydrocarbons and Energy Planning

Tseliso Maqubela, speaking at the conference on Energy in Southern

Africa, said the DME would publish its revised Nuclear Energy Policy

soon. He said that nuclear energy required substantial up-front

investment and decisions made in this regard were difficult, even in

the best of economic climates. Another speaker, French nuclear

company Areva Plant Business Development Manager Dr. Yves Guenon

said there would be tangible benefits for South Africa and its

PRETORIA 00002556 005 OF 005

intention to create a manufacturing industry around nuclear if Eskom

makes a firm commitment to build the new nuclear reactor this year.

Areva and Toshiba’s Westinghouse of the US have both submitted bids

to build Eskom’s Nuclear-1 power plant, which would be a new

generation pressurized water reactor (PWR) with a capacity of

between 3,200 and 3,500 MW.

——————————————–

Eskom Accused of Meddling in Economic Policy

——————————————–

¶15. (SBU) Chamber of Mines (COM) President and Xstrata CEO Sipho

Nkosi has accused state-owned power company Eskom of meddling in

national economic policy. He said its actions caused the mining

industry to lose an estimated $1.6 billion of production, wiped

$11-12 billion from the value of mining equities in just one week in

January, and severely compromised mine safety. He also accused

Eskom of making decisions that impacted national economic policy

that was the prerogative of the SAG. The COM has demanded that a

protocol be developed to handle power supply emergencies and prevent

Eskom from unilaterally taking policy decisions in the future.

Nkosi also accused Eskom of treating miners as a “soft target” in

its drive to reduce power supplies. In response, Eskom spokesman

Fani Zulu said the utility hoped for a “ground-breaking result” in

the development of the proposed protocol and justified the

nationwide power cuts in January due to the necessity to prevent a

total system collapse.

¶16. (SBU) Nkosi wants a protocol drafted and signed into legislation

immediately to ensure Eskom does not usurp state policy powers. The

proposed protocol would rank customers according to their

contribution to the economy, with the major contributors only having

power cuts as a last resort. He said the mining sector was of major

importance in regard to foreign currency earnings and employment,

but was being forced to bear the brunt of the electricity crisis.

Nkosi was also critical of new provisions in the Mine Health and

Safety Amendment Bill awaiting the approval of the National Council

of Provinces, which legal experts had concluded were

unconstitutional. These provisions related to a new section that

made it obligatory for an inspector of mines to close down a mine

site following a death, serious injury or illness. Another

provision made it a criminal offence for an employer, chief

executive officer or employee to fail to comply with the proposed

act.

BOST

(60 VIEWS)