US embassy cable - 05PRETORIA1099

UNCLAS SECTION 01 OF 04 PRETORIA 001099 
 
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 2, FEBRUARY 2005 
 
REF:  A) PRETORIA 3049, B) PRETORIA 2998 
 
THIS CABLE IS NOT FOR INTERNET DISTRIBUTION. 
 
1.  (U) Introduction:  In January 2004, the Economic Section 
of Embassy/Pretoria produced the first issue of a new monthly 
newsletter called "The Assay".  The purpose of this monthly 
newsletter 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. 
 
- 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. 
 
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MINING INDABA 2005 
------------------ 
Indaba 2005 - 10th Anniversary of "Investing in African 
Mining" Conference 
--------------------------------------------- ---------- 
 
3.  (U) The Mining Indaba (the Zulu word for conference), held 
annually in Cape Town, is the premier investment conference 
for the mining industry on the African continent.  The 
conference has matured as both a venue to gather more 
information about mineral production and active projects, as 
well as a place to negotiate business.  This issue of The 
Assay is devoted to relating information provided in company 
presentations at this year's Indaba. 
 
Energem: Where No Company Dares to Go 
------------------------------------- 
 
4.  (U) Brian Menell, Executive Chairman of Energem Resources, 
a mid-tier diversified resources company, said that his 
company "welcomes the African challenge." Currently, Energem 
has projects in 14 African countries, including the Central 
African Republic, Congo Brazzaville, Namibia, Angola, Sierra 
Leone, Madagascar, Nigeria, Kenya, Zambia, and Gabon.  When 
DiamondWorks changed its name to Energem in May 2004, the 
company was based in Namibia, where it had established a 
marine diamond mining operation with Samicor Mining Services 
Ltd., the mining arm of Israeli diamond dealer Lev Leviev. 
Energem is listed on the Toronto Stock Exchange and has grown 
from diamond mining and exploration into a diversified 
natural resources company focusing on diamond and mineral 
exploration, upstream and midstream oil and gas production, 
industrial chemicals, logistics, and commodity trading (it 
owns 60% of the Swiss company Republic House AG). 
 
5.  (U) More recently, the company acquired a controlling 
interest in FirstAfrica Oil, which has a 51% share of the 
Gulf of Guinea Petroleum Company that has an oil play off 
Gabon in the East Oravinyari oilfield.  In addition, Energem 
has a 40% share in the Koidu mine in Sierra Leone and 
interests in the Yetwine and Luo diamond projects in Angola. 
Energem has assets in the mid-stream petroleum distribution 
sector through its 100% ownership of Otterbea International 
that supplies refined fuel products to Zambia.  It also has 
contracts for the supply of refined petroleum to Malawi and 
Kenya (a 55% share of Sceptre International which owns the 
Kisumu Ethanol fuel additive plant), and is planning a deep- 
water berth and storage facility for Nigeria.  Energem is in 
a joint venture that manages oil allocations granted to the 
government of Sao Tome, and is investigating supply 
opportunities in Angola and China (joint venture with 
PetroChina International).   Energem is currently carrying 
out mineral exploration in a number of African countries. 
 
New Platinum Major 
------------------ 
 
6.  (U) Newly incorporated Southern African Resources (SAR) is 
looking to become a major platinum producer in the not too 
distant future, according to Executive Director Roy 
Pitchford.  Pitchford told the Mining Conference that 
Southern African Resources owned the rights to the lucrative 
Leeuwkop property in South Africa's bushveld complex, 
adjacent to Lonmin's Eastern and Western platinum mines. 
Leeuwkop had an estimated resource base of over 100 million 
oz of PGM's, but this figure needed to be proven up.  The 
company is actively seeking investors to fund feasibility 
studies and a drilling campaign.  Southern African Resources 
listed on the Alternative Investment Market on the London 
Stock Exchange in 2002, and Pitchford said that the company 
was also looking to list in the United States. 
 
7.  (U) Pitchford and his experienced management team had 
already raised $3.3 million, and planned to invest $250 
million in the construction of a mine capable of producing 
300,000 oz a year.  That would make Southern African 
Resources the 5th largest platinum producer in the world, 
behind AngloPlats, Implats, Lonplats, and Northam.  Pitchford 
said that by mid-2005, he expected the pre-feasibility study 
would be completed and Southern African Resources could start 
its drilling program as part of what will become a bankable 
feasibility study.  He said that Southern African Resources 
had also obtained permits to explore in Botswana, Zimbabwe 
and Mozambique. 
 
Waterberg - The Future of Coal in South Africa 
--------------------------------------------- - 
8.  (U) Dr. Con Fauconnier, Chief Executive of Kumba Resources 
(now 67% owned by Anglo American), told the Indaba that the 
Waterburg Coalfield was the future of coal in South Africa, 
even though Kumba's Grootegeluk Mine was the only mine 
exploiting the field. 
 
9.  (U) The Waterberg lies about 300 km northwest of 
Johannesburg and extends into Botswana, where local 
authorities are investigating the commercial viability of a 
potential coal mine.  Earlier studies by the Department of 
Minerals and Energy (DME) showed the Waterberg basin to 
contain 32% of the country's 55 billion tons of in-situ coal 
reserves.  However, these calculations were imprecise because 
they lacked definitive information about the economic 
viability of the field.  Latest and more precise DME 
estimates of Waterberg reserves, incorporating data from the 
Grootegeluk Mine, indicate that proven reserves in the 
Waterburg may only be 3% of the country's total, while 
resources may exceed 50% of the country's total, but proven 
reserves.  The newly accepted precision required in 
calculating reserves has, therefore, moved the major portion 
of in situ coal into the resources category.  After more 
exploratory work is done, more Waterberg coal should again be 
classified as reserves. 
 
10.  (U) The Grootegeluk mine produces coal from a 115-meter 
thick deposit that contains 11 coal zones comprising 3 
billion tons of mineable coal.  Commissioned in 1980, the 
mine was originally established to supply coking coal to 
Iscor Steel.  Today, Grootegeluk boasts the largest coal 
beneficiation plant in the world, and supplies steam coal for 
electricity, metallurgical coal to ferroalloy plants, 
blending and coking coals to the steel industry, and may 
potentially supply coal to synfuel and petrochemical 
producers someday.  In addition, Anglo American is 
investigating the field's methane potential.  Fauconnier, who 
was recently re-elected as President of the South African 
Chamber of Mines, said that he believed the potential of the 
Waterberg would attract as much as $9 billion in investment 
in mining, beneficiation, power generation, and the 
production of high value coal products.  He believed that 
coal production could rise to well over 40 m t/y From the 
current 17 mt/y, and employ up to 11 000 workers (from the 
current 4,000). 
 
First Quantum Reviving African Copper 
------------------------------------- 
11.  (U) Philip Pascall, CEO of First Quantum Minerals, Ltd., 
a Toronto-listed mining and metals company, told the Indaba 
that his company was engaged in mineral exploration, 
development, mining, smelting and refining of copper and 
cobalt in Africa.  In particular, the company was active in 
the world class Zambian-Democratic Republic of the Congo 
(DRC) copper-cobalt belt that traversed the boundary between 
the two countries.    Pascal said that he expected First 
Quantum to increase its copper production from Zambia and the 
DRC to 250,000 t/y by 2006.  Total Zambian production is 
currently about 400,000 t/y.  In the mid-1960's the Zambian 
copperbelt produced 825,000 t/y of copper. 
 
12.  (U) First Quantum operates both the Bwana Mkubwa (Zambia) 
and the Lonshi (DRC) mines.  Pascall said that the company 
wanted to bring the Kansanshi (Zambia) and Lufua (DRC) 
projects on line during 2005 and 2006, respectively.  He said 
that Kansanshi was First Quantum's flagship, and that it 
should be producing 145,000 t/y of copper by 2008.  Pascal 
believed that the world would require 200 mt of copper over 
the next decade (current production is about 14 mt/y), and 
that Zambia and the DRC would have to supply a significant 
portion of this additional production.  He commented that the 
cross-border relationship between the Zambia and the DRC was 
good, enabling most of First Quantum's DRC production to be 
transported to Zambia for processing. 
 
Diamonds 
-------- 
 
13.  (U) Gary Ralfe, CEO for the De Beers Group, laid out his 
company's plans (at the Indaba) to spend $110 million on 
worldwide exploration in 2005.  Ralfe also said that De Beers 
would cooperate with the governments of South Africa, 
Botswana, and Namibia to foster the development of local 
jewelry industries, though he announced no commitments. 
Maurice Templesman, Chairman of Lazare Kaplan International, 
did take the plunge, however, when he announced plans to 
assist a women's group to start a local jewelry manufacturing 
enterprise in South Africa.  A number of African governments 
see diamond polishing, cutting, and jewelry manufacturing as 
vital for job-creation and as a driver of economic 
development. 
 
14.  (U) SouthernEra Diamonds and Energem Resources 
(Canadian), Namakwa Diamonds (Australian), and ministers from 
Angola, Sierra Leone, the DRC, Mozambique, Madagascar, and 
Tanzania, also gave presentations that included diamond 
exploration and mining.  At this point, Botswana, South 
Africa, Namibia, the DRC, and Tanzania are significant 
producers in the SADC region, but Zimbabwe and Lesotho are 
also producing.  In West Africa, only Sierra Leone and 
Liberia are significant producers.  The craton theory of the 
origin of diamonds has created some exploration interest in 
Madagascar, Cote D'Ivoire, the Central African Republic 
(CAR), Gabon, and Zambia. 
 
------------------ 
OTHER DEVELOPMENTS 
------------------ 
Assmang to Produce More Iron and Manganese 
------------------------------------------ 
 
15.  (U) Plans by Assmang, the joint venture between African 
Rainbow Minerals (ARM) (54%) and Assore (46%), are underway 
to substantially increase the production and export of iron 
ore and manganese ore from their mines in the Northern Cape 
Province, and to secure greater rail capacity for export and 
local sales.  Increased demand from China for these ores 
(used in steel-making) has provided the opportunity for 
Assmang to expand brown- and green-field production.  Some 
$700,000 was invested in the company over the past nine 
years, some of which was to complete a feasibility study 
(decision by yearend) for the proposed new iron-ore mine, to 
be located next to Kumba Resources' giant Sishen mine, and 
the Orex rail line. 
 
16.  (U) In tandem with Kumba, Assmang is negotiating with 
Spoornet to expand rail capacity on the Orex line, which runs 
from Sishen to the port of Saldanha and for the upgrade in 
capacity and efficiency of the Port Elizabeth rail line that 
carries their manganese ore.  According to Frans Bruwer, 
Spoornet Operations Manager at Saldanha Bay, Assmang plans to 
increase exports from the current 5 mt/y to 15 mt/y. 
 
South African Company Buys Coal Terminals 
----------------------------------------- 
 
17.  (U) The South African shipping company Grindrod (GND) has 
acquired control of the Namibian-listed African Portland 
Industrial Holdings Limited (API), the owner of Matola Coal 
Terminal in Mozambique and the Walvis Bay Coal Terminal in 
Namibia.  The purchase of 72% of API gives the group access 
to bulk terminals on the eastern and western seaboard of 
Africa.  Grindrod Director Laurence Stuart-Hill said the deal 
amounted to $5 million. 
 
18.  (U) The Matola terminal in Maputo, with the capacity to 
handle about 1.5 mt/y of coal, has the potential to grow as 
it lies in close proximity to South Africa's main coalfields 
and to the chrome, vanadium, and iron ore deposits of the 
east and north limbs of the Bushveld Complex.  Stuart-Hill 
told the press that Grindrod aimed to expand its presence in 
the Port of Maputo to service a wider customer base and 
provide synergies for its shipping lines, particularly in the 
bulk sector. 
 
FRAZER