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F R I C A :
T H ERN A
FOCU S ON S O U
MIN I N G
A F R I C A
I N
FLANDERS INVESTMENT & TRADE MARKET SURVEY
Mining in Africa
Focus on Southern Africa
August 2014
Marc Schiltz
Flemish Economic Representative
Flanders Investment & Trade Johannesburg
T: +27 11 783 47 32 | E: johannesburg@fitagency.com
Contents
OVERVIEW (Selected Countries ONLY) .................................................................................................... 3
POTENTIALLY LUCRATIVE AFRICAN MINING DESTINATIONS .................................................................. 4
1. MINING in SOUTH AFRICA ............................................................................................................... 5
1.1 GOLD INDUSTRY ...................................................................................................................... 8
1.2 DIAMOND INDUSTRY ............................................................................................................. 10
1.3 PLATINUM INDUSTRY ............................................................................................................ 14
1.4 COAL MINING INDUSTRY ....................................................................................................... 16
1.5 IRON-ORE INDUSTRIES .......................................................................................................... 20
1.6 STEEL INDUSTRY .................................................................................................................... 23
2. MINING IN BOTSWANA ................................................................................................................. 26
2.1 INTRODUCTION ..................................................................................................................... 26
2.2 DIAMONDS ............................................................................................................................ 26
2.3 COAL ...................................................................................................................................... 27
2.4 GOLD...................................................................................................................................... 28
2.5 URANIUM .............................................................................................................................. 28
2.6 OTHER MINERALS .................................................................................................................. 29
2.7 BOTSWANA’S MAJOR MINING COMPANIES ......................................................................... 29
3 MINING IN MOZAMBIQUE ............................................................................................................ 31
3.1 MOZAMBIQUES ECONOMY ................................................................................................... 31
3.2 COAL PRODUCTION ............................................................................................................... 32
3.3 GOLD PRODUCTION............................................................................................................... 33
3.4 ALUMINIUM PRODUCTION ................................................................................................... 33
3.5 MAJOR MINING COMPANIES IN MOZAMBIQUE ................................................................... 34
4 MINING IN NAMIBIA ...................................................................................................................... 35
4.1 NAMIBIA’S ECONOMY ........................................................................................................... 35
4.2 MAJOR MINING COMPANIES IN NAMIBIA ............................................................................ 37
5 MINING IN ANGOLA ...................................................................................................................... 39
5.1 THE DIAMOND MINES ........................................................................................................... 39
5.2 FINANCIAL CRISIS & RECOVERY ............................................................................................. 41
5.3 MAJOR MINING COMPANIES IN ANGOLA ............................................................................. 41
6 CURRENT MAJOR MINING PROJECTS IN AFRICA ........................................................................... 43
7 REFERENCES .................................................................................................................................. 46
2
OVERVIEW (Selected Countries ONLY) The African continent is richly endowed with mineral resources. The US Geological society ranks Africa as the largest or second-largest reserve of bauxite, cobalt, industrial diamonds, manganese, phosphate rock, platinum group metals and zirconium. The products produced from these minerals are found in everyday life. Africa has a history of acting as a feedstock for the world’s mineral hunger. British, Belgian and Portuguese colonies produced precious metals and gems since the early 1800s while the majority of private foreign capital invested on the continent between 1870 and the Second World War was channelled into mining. By early 1990, however, the continent was still only receiving some 5% of global exploration and mining development expenditure. A study by the Word Bank on the shortcomings of African territories in the eyes of miners revealed a need for infrastructure, stable legal systems, a predictable fiscal regime, profit repatriation guarantees, and access to foreign exchange. The remarkable changes that took place in Africa from 2000 to 2011, resulted in the continent receiving 15% of global exploration expenditure and mining investment during 2012. The African continent contributed 6.5% of the world’s mineral exports during 2011 from mining 20% of the world’s land area. From a regional perspective, members of the Southern African Development Community (SADC) produce two-thirds of Africa’s mineral exports by value. The biggest player in the region is South Africa. The East African Community (EAC) has several mineral belts that produce (amongst other commodities) tanzanite and gold, with Tanzania being the biggest regional gold producer. Burundi has some gold reserves along with copper, cobalt, nickel and uranium deposits. Exploration activity in western Kenya has increased significantly over the past few years. Central and West Arica are increasing being seen as boom areas for iron-ore exploration and mining. The area is seeing a significant increase in railway construction in order to transport ore to ports and this has led to the opening of mines in Guinea, Liberia and Sierra Leone. The Economic Community of West African States (ECOWAS) exported US$150-bn worth of goods during 2011. The biggest challenge faced by the burgeoning mining sector in the region is country- specific political risk. Around 85% of global phosphate reserves are located in North Africa. The majority of the area’s mined phosphates are used in the production of fertilizer. The pricing outlook for phosphate is positive. There is no effective substitute for this raw material when used for making fertilizers. Mining in Africa – Focus on Southern Africa | August 2014 3
POTENTIALLY LUCRATIVE AFRICAN MINING DESTINATIONS Botswana: Botswana is the largest diamond miner in the world. The country also has well-known coal reserves, and coal production is likely to become of increasing value to the country. The country is estimated to have more than 200-bn tonnes of coal reserves and the development of the coal sector has become a key priority. Ghana: Gold is the most important mining sector. The mining landscape is dominated by foreign-owned firms. Ghana is the second-largest gold producer on the continent after South Africa. Production growth over the long-term is very favourable. Companies including Perseus Mining Ltd. and Endeavour Mining Corporation invested US$20-bn in Ghanaian gold mines during 2011-12. Mozambique: The mining sector’s contribution to overall economic activity is expected to increase significantly over the medium- to long-term on the back of a sharp projected increase in global coal production. According to the IMF, megaprojects have the potential to make a contribution of 18% of total value added in the economy by 2016. Coal production could reach beyond 100-million tonnes p.a. within the next five years. Namibia: Mineral exports constitute half of the country’s total export earnings, with the country producing diamonds, uranium, copper, magnesium, zinc, silver, gold, lead, semi-precious stones and industrial minerals. Namibia is the fourth-largest exporter of non-fuel minerals in Africa. The mining sector is expected to post a real expansion of 12.5% p.a. towards 2017. Tanzania: The mining industry remains relatively small but is exceedingly important as a significant source of export revenues. The sector contributed approximately 3.2% to GDP in 2012. It is estimated that about 90% of Tanzania’s minerals have yet to be exploited. The construction of a nickel mine is set to start in 2014 and large-scale uranium mining is likely to commence over the coming year. Zambia: The country has a wide spectrum of mineral resources including copper, cobalt, zinc, gold, manganese, nickel and gemstones. The country remains dependant on the extraction and processing of copper and cobalt for export. Copper and cobalt account for approximately 10% of GDP and around 80% of export receipts. The sector is expected to expand by 2% - 4% p.a. over the next five years. Other countries of interest include Angola, Cameroon, DRC, Kenya, Liberia, Mali, Rwanda and Sierra Leone. 4
1. MINING in SOUTH AFRICA South Africa is a world leader in mining. The country is famous for its abundance of mineral resources, accounting for a significant proportion of world production and reserves, and South African mining companies are key players in the global industry. South Africa’s total reserves remain some of the world’s most valuable, with an estimated worth of R20.3-trillion ($2.5-trillion). Overall, the country is estimated to have the world’s fifth-largest mining sector in terms of GDP value. It has the world’s largest reserves of manganese and platinum group metals (PGMs), and among the largest reserves of gold, diamonds, chromite ore and vanadium. With South Africa’s economy built on gold and diamond mining, the sector is an important foreign exchange earner, with gold accounting for more than one-third of exports. In 2009, the country’s diamond industry was the fourth largest in the world. South Africa is also a major producer of coal, manganese and chrome. There is considerable potential for the discovery of other world-class deposits in areas yet to be exhaustively explored. South Africa’s prolific mineral reserves include precious metals and minerals, energy minerals, non-ferrous metals and minerals, ferrous minerals, as well as rare earth and industrial minerals. Given its history and mineral wealth, it is no surprise that the country’s mining companies are key players in the global industry. Its strengths include a high level of technical and production expertise, and comprehensive research and development activities. World-class primary processing facilities work with carbon steel, stainless steel, and aluminium, gold and platinum. South Africa is also a world leader of new technologies, such as a ground-breaking process that converts low-grade superfine iron ore into high- quality iron units. BENEFICIATION AND OTHER POLICIES In the 2011/12 Fraser Institute Survey, South Africa was ranked 54th out of 93 countries and provinces. The Fraser Institute, a leading Canadian think tank, measures the policy attractiveness of mining destinations by polling mining company executives. Lucrative opportunities exist for downstream processing and adding value locally to iron, carbon steel, stainless steel, aluminium, PGMs and gold. A wide range of materials is available for jewellery, other than gold, platinum and diamonds; and many other semiprecious stones. For this purpose, the government has developed a minerals beneficiation strategy as a key area for potential growth. It has planned to transform the industry from being largely resource-based to knowledge-based. Downstream activities are already well-developed, and downstream products from the industry used locally include cement, steel, liquid fuels, electricity, polymers and plastics, with an estimated total sales value of R200- billion ($24.6-billion). Mining in Africa – Focus on Southern Africa | August 2014 5
South Africa's beneficiation strategy compliments other government programmes, and the mining
industry value chain has been prioritised as an economic growth node in the New Growth Path,
which highlights a path for the industry out of its depression until 2020.
BLACK ECONOMIC EMPOWERMENT
By the end of 2011, South Africa’s mining industry was the largest contributor of economic
transformation, with broad-based black economic empowerment (BB-BEE) deals worth R150-billion
completed. Black economic empowerment targets apply to all companies in the country, meaning a
certain percentage of local assets must be sold to black South Africans. But with black ownership of
the mining sector at 8.9% in 2009 – well below the target of 15% by 2007 – the government is putting
significant pressure on mines to reach the next target of 26% by 2014.
THE NATIONALISATION DEBATE
The nationalisation debate holds sway over the industry and investment in it, despite the
government and the ruling African National Congress repeatedly stating that nationalisation of mines
is not policy. The party’s Youth League and other groups have called for mines to be nationalised, and
there are ongoing debates about licences, royalties and ownership.
The Mining Industry Growth Development and Employment Task Team (Migdett) was established at
the height of the global financial crisis in 2008, with stakeholders from the government, industry, and
labour. They committed to achieve two critical outcomes:
To help the industry manage the negative effects of the global economic crisis and to save jobs;
To position the industry for growth and transformation in the medium to long term.
ECONOMIC SITUATION IN THE MINING INDUSTRY
The economy of South Africa is the second
largest in Africa, behind Nigeria, and it accounts
for 24% of its gross domestic product in terms
of purchasing power parity, and is ranked as an
upper-middle income economy by the World;
this makes the country one of only four
countries in Africa in this category the others
being Botswana, Gabon and Mauritius.
Since 1996, at the end of over twelve years of
international sanctions, South Africa's Gross
Domestic Product has almost tripled to $400
billion, and foreign exchange reserves have
increased from $3 billion to nearly $50 billion;
creating a growing and sizable African middle
class, within two decades of
establishing democracy and ending apartheid.
According to official estimates, a quarter of the population is unemployed, According to a 2013
Goldman Sachs report, that number increases to 35% when including people who have given up
looking for work. A quarter of South Africans live on less than US $1.25 a day.
South Africa has a comparative advantage in the production of agriculture, mining
and manufacturing products relating to these sectors. South Africa has shifted from
a primary and secondary economy in the mid-twentieth century to an economy driven primarily by
the tertiary sector in the present day which accounts for an estimated 65% of GDP or $230 billion in
nominal GDP terms. The country's economy is reasonably diversified with key economic sectors
6
including mining, agriculture and fisheries, vehicle manufacturing and assembly, food processing,
clothing and textiles, telecommunication, energy, financial and business services, real estate,
tourism, transportation, and wholesale and retail trade.
South Africa is a world leader in mining, and mining remains the back bone of the country’s
economy. It has been so since the precious metal was discovered in Johannesburg around 1887.
The country’s huge and varied mineral reserves play a vital role in the economy, accounting for
nearly half of the country’s merchandise exports, including beneficiated products. The industry is the
largest employer, rivaled only by the public service which employs over a million people.
According to Brand South Africa, South Africa’s total reserves remain some of the world’s most
valuable, with an estimated worth of R20.3-trillion ($2.5-trillion). Overall, the country is estimated to
have the world’s fifth-largest mining sector in terms of GDP value. With South Africa’s economy built
on gold and diamond mining, the sector is also an important foreign exchange earner.
But economists are concerned that continued strikes in major mining companies could damage the
South African economy and hold back growth and employment. This comes as reports indicate that
more than 70,000 platinum mineworkers downed tools in Rustenburg on January 23.
The alarm by the government and some economists is probably justifiable considering that in 2009,
South Africa’s diamond industry was the fourth largest in the world. The country is also a major
producer of coal, manganese and chrome. Even though the price for platinum has not been affected
by the wave of strikes since last year, economists warn that things could change if the unrest
continues.
The Association of Mineworkers and Construction Union (AMCU), which is the majority union in the
platinum belt, have been demanding R12 500 salary for its members. Impala on the other hand, is
reportedly offering increases of 9% in the first year, 1.8% in the second and 7.5% in the third, which
will increase entry-level wages from R9, 297 a month to R11, 746 by the third year. This apparently
includes a living-out allowance, medical and retirement contributions and a 13th cheque.
According to the Chamber of Mines, mining:
Creates one million jobs (500 000 direct and 500 000 indirect).
Accounts for about 18% of GDP (8.6% direct, 10% indirect and induced).
Is a critical earner of foreign exchange at more than 50%.
Accounts for 20% of investment (12% direct).
Attracts significant foreign savings (R1.9-trillion or 43% of value of JSE).
Accounts for 13.2% of corporate tax receipts (R17-billion in 2010) and R6-billion in royalties.
Accounts for R441-billion in expenditures, R407-billion spent locally.
Accounts for R78-billion spent in wages and salaries.
Accounts for 50% of volume of Transnet’s rail and ports.
Accounts for 94% of electricity generation via coal power plants.
Takes 15% of electricity demand.
Responsible for about 37% of the country’s liquid fuels via coal.
Total mining expenditure in 2010 was R441-billion, of which:
R228.4-billion was spent on purchases and operating costs (timber, steel, explosives,
electricity, transport, uniforms, etc.
R78.4-billion went on salaries and wages for mine employees.
R49-billion on Capex (the lifeblood of mining).
R17.1-billion in tax.
R16.2-billion in dividends (only 3.7% of total).
R38-billion on depreciation and impairments.
R13-billion on interest to the banks.
Mining in Africa – Focus on Southern Africa | August 2014 7
1.1 GOLD INDUSTRY
South Africa continues to hold the world’s largest
reserves of gold after more than 126 years of mining;
however, the country’s gold output has slowed in
recent years. In December 2012, it was noted that
the decline in South African gold production over the
past five years has been significant. Production was
down to about 180 000 kg of gold a year, while seven
years ago, South Africa was producing double that.
South Africa’s gold mines are already the deepest in the world and deep-level mining has significant
financial challenges, as it is particularly expensive. Mining in South Africa generally faces notable cost
increases, including increased labour costs. One slight reprieve, however, is the recent
announcement by the National Energy Regulator of South Africa that State-owned electricity utility
Eskom will be limited to an average yearly rate increase of 8% over the period 2013 to 2018. While
still significant, this increase is half of the 16% increase that was sought by the State-owned entity. As
electricity is a major input cost for gold miners, this announcement represents a degree of relief.
In December 2012, consultancy Deloitte’s ‘Tracking the Trends 2013’ report showed projected
investment in the Australian mining industry to be 18 times higher than projected investment in
South Africa’s mining industry, which had a history of better returns. The report showed that
projected investment in Australia from 2012 to 2031 is $55-billion, compared with $3-billion in South
Africa in the same 19-year period.
Since the second half of 2012, South Africa’s mining industry has been experiencing widespread
industrial action. The unrest was sparked by the August 2012 Marikana tragedy, in which 34 striking
platinum miners were killed in a standoff with police. The incident shook South Africa’s reputation as
a world-class mining investment destination and, in the wake of the shooting, labour discontent
spread from the platinum mining industry to various other mining sectors.
For some time, groups within the ruling African National Congress, including that led by Julius
Malema, expelled leader of the party’s Youth League, have been fighting for the nationalisation of
the country’s mines. Many commentators believe that this has deterred potential investors. While
nationalisation no longer appears to be on South Africa’s policy agenda, companies continue to call
8
for government’s establishing of clear long-term regulations. Mining companies have decades-long
investment horizons and fear arbitrary and unpredictable regulatory change. It is critical that they
have a regulatory framework on which they can rely on when making long-term investment
decisions.
MAJOR GOLD-MINING COMPANIES
ANGLO SHANTI GOLD - www.anglogold.co.za
Johannesburg-based AngloGold Ashanti produced 3.94-million ounces of gold in the year ended
December 31, 2012, compared with 4.3-million ounces in 2011, at a total cash cost of $862/oz,
compared with $728/oz in 2011.
Outside South Africa, AngloGold Ashanti owns stakes in eight African mines that collectively
contributed 1.54-million ounces to the company’s gold production in 2012, compared with 1.57-
million ounces in 2011, at a total cash cost of $905/oz, compared with $765/oz in 2011.
Outside Africa, AngloGold Ashanti is involved in a further five operations. AngloGold Ashanti
undertook capex valued at $2.15-billion in 2012, including project capital spending of $1.1-billion. Of
the total project capital spent, about 80% was dedicated to the Mponeng, Kibali, Tropicana and
Cripple Creek & Victor projects.
HARMONY GOLD - www.harmony.co.za
Harmony Gold is a gold mining company that has long been active in South Africa’s gold mining
industry. Harmony’s current portfolio has been amassed out of extensive merger, acquisition and
growth activities, which have enabled the company to develop into a significant global gold producer
with a substantial asset base. Harmony has also engaged in the disposal of certain assets. Recent
disposals have included the sale of the Evander mine and an interest in Rand Uranium.
The company is listed on the stock exchanges in Johannesburg, New York, Berlin and Brussels. It is
28%-owned by black economic-empowerment entities and has recently introduced an employee
share ownership plan – the Tlhakanelo Employee Share Trust – from which more than 33 000
employees and their dependants stand to benefit.
The bulk of Harmony’s gold production stems from its operations in South Africa – nine underground
mines, an open pit mine and several surface operations, which exploit the gold-bearing reefs of the
Witwatersrand basin. The company’s underground portfolio comprises the Bambanani, Joel,
Masimong, Phakisa, Target, Tshepong and Virginia mines, in the Free State; the Doornkop mine,in
Gauteng; and the Kusasalethu mine, in the North West.
SIBANYE GOLD LIMITED - www.sibanyegold.co.za
Sibanye Gold Limited is a proudly South African gold mining company with three principal operations,
namely Kloof and Driefontein in the West Witwatersrand region and Beatrix in the Free State.
Sibanye Gold is the largest producer of gold in South Africa and amongst the top ten largest gold
producers globally.
Sibanye Gold's operations are historically some of the most productive mines in the industry and,
with Reserves of 13.5 million ounces and Resources of 74.2 million ounces at the end of 2012, are
likely to remain so for many years. The company is currently implementing a new operating model
and strategy, following an in-depth review of the business and its high quality mines, which still have
the potential to produce over 1.2 million ounces of gold per annum for more than ten years
Mining in Africa – Focus on Southern Africa | August 2014 9 GOLD FIELDS - www.goldfields.co.za
Gold Fields Limited is an unhedged, globally diversified producer of gold with eight operating mines
in Australia, Ghana, Peru and South Africa. In February 2013, Gold Fields unbundled its mature,
underground KDC and Beatrix mines in South Africa into an independent and separately listed
company, Sibanye Gold. In October 2013, it expanded its presence in Western Australia by acquiring
the Granny Smith, Lawlers and Darlot mines (known as the Yilgarn South Assets) from Barrick Gold.
Gold Fields has attributable annual gold production of approximately 2.02 million ounces, as well as
attributable Mineral Reserves of around 49 million ounces and Mineral Resources of about 113
million ounces. Attributable copper Mineral Reserves total 708 million pounds and Mineral
Resources 7,120 million pounds. Gold Fields has a primary listing on the JSE Limited, with secondary
listings on the New York Stock Exchange (NYSE), NASDAQ Dubai Limited, Euronext in Brussels (NYX)
and the Swiss Exchange (SWX).
RAND GOLD - www.randgoldresources.com
Rand gold Resources Limited (Randgold) is an African focused gold mining and exploration company
with listings on the London Stock Exchange and NASDAQ.
Major discoveries to date include the 7.5Moz Morila deposit in southern Mali, the 7Moz Yalea
deposit and the 5.5Moz Gounkoto deposit, both in western Mali, the 4Moz Tongon deposit in the
Côte d’Ivoire and the 3Moz Massawa deposit in eastern Senegal. Randgold financed and built the
Morila mine which, since October 2000, has produced more than 6Moz of gold and distributed more
than US$2 billion to stakeholders. It also financed and built the Loulo operation which started as two
open pit mines in November 2005.
1.2 DIAMOND INDUSTRY
South Africa has the most diverse range of diamond deposits in the world. Deposits include open pit
and underground kimberlite pipe-, dyke- and fissure mining, alluvial mining, as well as on and
offshore marine mining. South Africa produced 6,139,682.00 carats in
2009. South Africa produces in the region of 5% of global
production and is ranked 7th in the world in terms of rough
diamond production. A severe downturn was experienced in the
second half of 2008, but both production and prices are
showing signs of stabilisation. This recovery has encouraged
junior diamond miners to resume production and to continue
with proposed expansion projects. De Beers, which contributes in
the region of 45% of the world’s diamond market, shut down
approximately 60% of its operations in 2009. Petra has bought many
mines previously owned by De Beers. Petra Diamonds has a world-class resource base of 262 million
carats - all kimberlite. Other producers include Trans Hex and Diamondcorp.
Diamondcorp's primary asset in South Africa is the Lace Diamond Mine, located near Kroonstad in
the Free State Province. DiamondCorp, who was awarded a mining right to the Lace property in
February 2009, has recently resumed development at the Lace mine. It is hoped that the
development will be completed during 2011, allowing for increased production to 1.2mtpa.
Following changes in South Africa's Minerals Bill, several of South Africa's larger companies are being
forced to relinquish prospective properties. As a result, this has provided excellent incentives and
entry points for foreign investment and black empowerment mining companies in particular, as this
aspect forms one of the cornerstones for the new Minerals Bills.
10Most production is sourced from kimberlite mines, followed by alluvials and then marine. South Africa’s kimberlite mines are located mainly in the central northern parts of the country. Over the last 100 million years most kimberlites have had a significant amount of erosion taking place, resulting in several billion carats being eroded and transported fluvially. This has resulted in numerous alluvial diamond deposits along the Orange and Vaal rivers. Finally, ancient beach terraces and marine deposits located along the west coast constitute an enormous resource. KIMBERLITE DIAMOND MINING De Beers is the world’s largest producer of gem quality diamonds, producing around 45% of world production. It is the leader in diamond mining and recovery technology and produces diamonds from its numerous large and small diamond mining operations which cover every category of mine - open pit, under- ground, alluvial, coastal and undersea. In 2009, De Beers Consolidated Mines Ltd recovered 4.8 million carats from 11.3 million tonnes treated. The Venetia diamond mine, which opened in 1992, is De Beers’ flagship operation. Situated 80km from Musina (formerly Messina) in Limpopo Province, the mine is South Africa’s largest diamond producer, producing 2.2 million carats in 2009. The mine is currently an open-pit operation, but it is expected to convert to underground mining between 2018 and 2021 as the mine becomes deeper. The Finsch mine, established in 1961, is situated 165km west of Kimberley in the Northern Cape Province. De Beers recovered 2.317 million carats during the calendar year 2008, and announced, in June 2010, a planned restructuring at Finsch Mine to ensure it is a sustainable business in the years to come. Voorspoed is the first De Beers mine to be opened in South Africa since De Beers entered into a groundbreaking Broad-Based Black Economic Empowerment (BBBEE) transaction with Ponahalo Holdings Limited in 2006. The Voorspoed mine, located approximately 30 km North East of Kroonstad, in the Fezile Dabi District of the Free State Province, was officially opened in 2008. It is expected that Voorspoed will be operational for 12-16 years, including ramp up and closure. The mine is expected to produce up to 800,000 carats per annum. Since 2008 Voorspoed has produced 660 000 carats. Cullinan is one of the world's most celebrated diamond mines and is renowned for producing many of the most spectacular diamonds ever seen. The Cullinan kimberlite pipe is the second largest indicated diamond resource in the world and totals in the region of 204 million carats (including tailings). Petra Diamonds is currently implementing an expansion plan at Cullinan which will take production from just over 920,000 carats in the 2010 financial year to 2.6 million carats by 2019. Koffiefontein is one of the world's top kimberlite mines by average value per carat. The mine produces high-value diamonds - the average value per carat achieved in the financial year to June 2010 was US$402. In 1994, a 232.34 carat diamond was recovered at Koffiefontein, being the largest rough diamond ever produced by the mine. Petra acquired Koffiefontein in 2007 from De Beers for R81.9 million. Koffiefontein is now a significant contributor to the groups’ revenue. Kimberley Underground comprises Bultfontein, Dutoitspan and Wesselton, three historic diamond mines which were at the heart of the diamond rush in the Kimberley region of South Africa in the late 1800's. These mines have also produced spectacular diamonds in the past, such as The Oppenheimer, a nearly perfectly-formed 253.7 carat yellow diamond crystal. Petra completed the acquisition of Kimberley Underground from De Beers in May 2010. The fissure mines - Helam, Sedibeng and Star - were acquired when Petra merged with Crown Diamonds NL in May 2005. Mwana Africa has an interest in the Klipspringer Diamond Mine, located 250 km north of Johannesburg and 35 km south of Polokwane. The mine is a joint venture between Mwana (62%) and Naka Diamond Mining (Pty) Ltd (38%), a Black Economic Empowerment company. Mining in Africa – Focus on Southern Africa | August 2014 11
The Trans Hex Group is another world-class player in the exploration, mining and marketing of high- quality land and marine diamonds in South Africa. Mvela Resources holds a 20.7% interest in the Trans Hex Group. Trans Hex has operations at Baken and Richtersveld. Namakwa Diamonds is an integrated diamond resource group focused on diamond mining and beneficiation across Southern Africa. While alluvial diamond deposits, including marine, have to date constituted the primary focus of the Company, a recent kimberlite acquisition has been made in Lesotho. MARINE DIAMOND MINING Significant advances in surveying, sampling and recovery techniques have made South Africa’s extensive marine deposits accessible. Although the sizes of these diamonds are generally smaller than diamonds produced inland, the quality is unsurpassed. All of these deposits originally coming from kimberlites in South Africa, which were washed down the Orange River and deposited at the river mouth as well as along the coastlines of Namibia and South Africa. Methods of recovering diamonds vary from shore-diving to specialised ships. De Beers uses two mining methods, namely a horizontal system, in which a seabed crawler brings diamond-bearing gravels to the vessel through flexible slurry hoses; and a vertical system, in which a large-diameter drilling device mounted on a compensated steel pipe drill string, recovers diamond-bearing gravels from the seabed following a systematic pattern over the mining block. De Beers’ South Africa Sea Areas operation, or ML3/2003, as it is called, covers a concession area of 8,000km2 along the West Coast of South Africa. The SASA project yields 240,000 carats a year. Trans Hex holds approximately 11 300 km2 of concession areas off the west coast of South Africa, situated around the De Punt and Port Nolloth processing plants. Transhex discontinued its marine operations conducted by the MV Ivan Prinsep and the MV Namakwa in March 2008. The MV Ivan Prinsep was recently sold for an amount of R35 million. Namakwa Diamonds is an integrated diamond resource group focused on diamond mining and beneficiation across Southern Africa. Alluvial diamond deposits, including marine, have to date constituted the primary focus of the Company. Approximately 25 different shallow water contractors are currently undertaking diver-based mining in the sub tidal concession areas. ALLUVIAL DIAMOND MINING Alluvial gravels, extending from the Lichtenburg to Barkly West districts along the Orange and Vaal Rivers and on the Northern and Western Cape coasts, yield diamonds commonly of a better quality than those found in the original kimberlite. Although there are still some alluvial diggers in the North West, Northern Cape and Free State provinces, the prospects for new labour-intensive small-scale diamond mines have been greatly reduced. Alexkor, established in 1989 when the State alluvial Diggings were taken over from the Government and transformed into the Alexander Bay Development Corporation, has been run as a public Company with the state as sole shareholder since 1992. Alexkor has significant strategic importance for the Namaqualand region, with its core business being the mining of diamonds on land, along rivers, on beaches and in the sea along the north-west coast of South Africa. Thabex Ltd concentrates on alluvial as well as kimberlitic deposits. Cinprop 0002 (Pty) Ltd, 10% held by Taung Diamonds, has been successful in being granted a Prospecting Right for alluvial diamonds over a portion of the farm Taung Reserves 894 NY from the DME. Namakwa’s Albetros Project is an alluvial diamond project situated over three farms covering approximately 7,600Ha, and currently offering the Namakwa Group the best opportunity for development and growth. It is one of the only remaining tracts of prime alluvial diamond land in 12
Namaqualand available for final stage prospecting and mining development. The discovery of a 90km
long fluvial palaeo channel called the Megalodon Channel in 2002, by De Beers, has created an
increased potential for the region for further deposits. The sites that constitute the Albetros Project
straddle a 3.3km long section of this channel.
MAJOR DIAMOND-MINING COMPANIES
DE BEERS - www.debeersgroup.com
De Beers’ diamond mining operations are concentrated in Southern Africa, where the 74%-owned De
Beers Consolidated Mines (DBCM) operates the group’s mining assets in South Africa and 50:50 JVs
Debswana and Namdeb operate mines in Botswana and Namibia respectively. Established in 1888,
De Beers is the world’s leading diamond company by value, supplying 35% of the world’s rough
diamonds from mines in Botswana, Namibia and Canada. It is involved in all aspects of the diamond
value chain – from exploration to mining; rough diamond sales; cutting, polishing and manufacturing;
and marketing.
PETRA DIAMONDS - www.petradiamonds.com
Petra Diamonds is a leading independent diamond mining group and an increasingly important
supplier of rough diamonds to the international market. Petra's exploration programme is focused in
Botswana, where modern exploration techniques offer the potential to make new discoveries in
previously explored areas. The Company operates both underground and open-pit operations in
South Africa and Tanzania. The Company has expansion plans in place at each of its core assets.
CULLINAN DIAMONDS - www.cullinandiamonds.co.za
The mine is the world’s main source for rare blue diamonds. Owned by a three way partnership
consortium, led by London-listed group Petra Diamonds, black economic empowerment group
Thembinkosi Mining Investments and Saudi-based investment company Al Rajhi Holdings, the
Cullinan Diamond Mine is expected to produce one million carats per year over the next 20 to 40
years. Cullinan Diamond Mine has generated 25% of the world’s diamonds over 400 carats. This
famous landmark is the source of the most famous diamond ever unearthed.
TRANS HEX - www.transhex.co.za
Trans Hex has been in the diamond mining industry for nearly 50 years. The Company is a world-class
player in the exploration, mining and marketing of diamonds of the highest quality. The company
has established mining operations in South Africa. Its flagship operation, Baken Mine, is situated on
the banks of the lower Orange River approximately 60 km from Alexander Bay. In Angola, Trans Hex
holds a 33% stake in Sociedade Mineira Luana (Somiluana), a fully operational alluvial mine, where
Trans Hex is also the appointed mining operator. The company also has minority interests in the
Luarica and Fucaúma projects, both of which are disclosed as discontinued operations as the mining
licences have been formally revoked by the Angolan State. Trans Hex is continuing with the
appropriate course of action to exit from these projects.
ROCKWELL DIAMONDS - www.rockwelldiamonds.com
Rockwell is focused on creating a growth-oriented mid-tier diamond mining and development
company. To meet this goal, the Company has an interest in several producing and exploration
alluvial diamond properties in southern Africa. The Company has three existing operations, namely
Saxendrift, Klipdam and Tirisano, which it is progressively optimizing. It also has two development
projects, Wouterspan and Niewejaarskraal . and a pipeline of other projects with future development
potential. Rockwell's operations and projects are all located in the Republic of South Africa.
Mining in Africa – Focus on Southern Africa | August 2014 13 NAMAKWA DIAMONDS - www.namakwadiamonds.co.za Namakwa is a diamond resource group, which seeks to extract maximum value from the marketing and sale of Group mined and contracted production. The Group's mining activities are focused on the Kao Mine in Lesotho. The Kao Mine is operated by 62.5% owned subsidiary Storm Mountain Diamonds and its leading hard-rock mining team, with a proven track record in the construction and development of Lesotho's leading kimberlite pipes. The Group also maintains alluvial mining operations and resource-development properties in the North West Province of South Africa and resource-development properties in the Northern Cape Province of South Africa, as well as in the offshore marine environment of Namibia. 1.3 PLATINUM INDUSTRY Following several uninterrupted years of gross surpluses, the platinum market reached a narrow deficit of 375 000 oz in 2012 from a surplus of 450 000 oz in 2011, owing to far-reaching disruptions in mine production in South Africa, the world’s largest platinum producer, which resulted in the country’s platinum producers losing at least 750 000 oz of production. Meanwhile, primary supplies of platinum fell to a 12-year low of 5.64-million ounces in 2012, from 6.485-million ounces in 2011, with platinum supplies from South Africa falling by 16% from 4.86- million ounces to 4.095-million ounces. The country’s platinum sector was afflicted by cost pressures, negative market conditions, strained capital expenditure, soft platinum group metals (PGM) prices, weak demand and declining output, owing to safety stoppages, widespread industrial action and the closure of marginal platinum operations in 2012. In the six months to December 2012, 3 332 workers lost their jobs in the platinum mining sector, owing to what was called an “unfavourable economic climate”, and more job losses are expected. Before the incident at Marikina, several South African producers were already considering restructuring low-margin operations in view of weak platinum prices and high costs. Wage agreements at some mines have fuelled mining cost inflation, threatening the prosperity of platinum miners. 14
CREATION OF A NEW PLATINUM-FOCUSED INDUSTRIAL HUB
A public–private partnership has been created to investigate the establishment of a special economic
zone (SEZ), aimed at attracting investments that add value to South Africa’s PGM resources before
they are exported. The SEZ, known as the Platinum Valley Hub, is one of ten new industrial hubs or
corridors under investigation by the provinces while the Department of Trade and Industry (DTI) is
pressing ahead with the approval of the SEZ Bill, which was introduced through Parliament. The
legislation expands the country’s industrial real-estate portfolio beyond the export-orientated
industrial development zones (IDZs) that already exist. The DTI aims to have the SEZ legislation in
place by end of the year. The hub is one of the three most advanced SEZs under review, along with
the Saldanha IDZ and the OR Tambo jewellery precinct. The geographical position of the Platinum
Valley Hub has not been confirmed, but it could possibly be located in the North West or be set up as
an industrial corridor between Limpopo and the North West. According to Platinum Valley
Development Initiative, the private-sector-led model is receiving high-level government and private-
sector backing. Besides the DTI, the SEZ is actively supported by the Department of Science and
Technology (DST) and the DMR.
The Chamber of Mines has reportedly also offered its support to the initiative, together with
individual mining companies, including Amplats and Lonmin; the Platinum Trust of South Africa; the
Minerals Processing and Beneficiation Industries Association of Southern Africa and Ramano’s
TerraCotta Resources, which first considered the idea. Ramano says the objective is to create an
innovation hub or corridor that will attract domestic and international investment for beneficiation
and value addition. Given platinum’s potential to emerge as a significant energy mineral, the hub’s
goal is to leverage South Africa and Africa’s need for energy that does not contribute to climate
change and to capitalise on South Africa’s PGM reserves, which currently represent about 70% of
global output. The SEZ dovetails with the DST’s Hydrogen South Africa (HySA) research and
development programme, which aims to create knowledge and human resource capacity for South
Africa’s platinum industry, which is currently focused only on mining activities.
The main objective of HySA is the development of value-added manufacturing for the PGM catalysis
value chain to secure a 25% global market share by 2020. Under HySA, university and science-council
researchers are investigating combined heat and power solutions, portable power systems,
hydrogen-fuelled vehicles, hydrogen filling stations and renewable hydrogen production. A concerted
effort is also being made to research and develop better autocatalysts and to commercialise new
catalysis solutions. Work on the Platinum Valley Hub project corresponds with work being conducted
under the aegis of the Industrial Policy Action Plan to map opportunities for various mineral value
chains, including PGMs, ferrous minerals and metals, titanium, pigments and polymers.
MAJOR PLATINUM-MINING COMPANIES
IMPLATS - www.implats.co.za
Impala Platinum Holdings Limited (Implats) is in the business of mining, refining and marketing of
platinum group metals (PGMs), as well as nickel, copper and cobalt. In the 2013 financial year,
Implats produced 1.58Moz of platinum (approximately 22% of global supply) and 3.23Moz of PGMs.
The group employs approximately 57,000 people (including contractors) across its operations.
Implats’ mining interests are found on the two most significant known platinum group mineral-
bearing orebodies in the world The Bushveld Complex in South AfricaOn the western limb - Impala
Platinum and the Leeuwkop project on the eastern limb - Marula Platinum and Two Rivers Platinum.
The Great Dyke in Zimbabwe where Implats operates Zimplats and has an interest in Mimosa
Platinum.
Mining in Africa – Focus on Southern Africa | August 2014 15 AMPLATS (ANGLO AMERICAN) - www.angloplatinum.com
Amplats is the world’s leading primary producer of platinum group metals and accounts for
approximately 40% of the world’s newly-mined platinum. The Company is listed on the JSE Limited
and has its headquarters in Johannesburg, South Africa.
Amplats has eight mining operations in the Bushveld Complex, namely the Bathopele, Dishaba,
Khomanani, Khuseleka, Mogalakwena, Siphumelele, Thembelani and Tumela mines. The Company is
currently developing the Twickenham Platinum Mine.
Elsewhere in the world, the Group operates the Unki Platinum Mine (100%) on the Great Dyke in
Zimbabwe and is actively exploring in Brazil with JV exploration partners.
NORTHAM - www.northam.co.za
Northam’s business relies on the two primary operating assets – the Zondereinde and
Booysendal PGM mines, and its own metallurgical operations, including a base metals removal plant
and smelter, located on the Zondereinde lease area. Northam is independent of the major South
African platinum producers and refines its metal through Heraeus, both in Port Elizabeth and in
Hanau, Germany. Northam’s in-house marketing department is responsible for marketing and sales
of product both domestically and to the major global markets in Asia, Europe and North America.
NKWE PLATINUM - www.nkweplatinum.co.za
Nkwe Platinum’s main Tubatse and Garatau Projects consist of five contiguous farms with a strike
length of more than 30km. These Projects are located in an established mining district with well-
developed infrastructure. It borders Anglo Platinum’s Modikwa Joint Venture to the east, Implat’s
Marula mine to the north and Eastplat’s Spitzkop – Kennedy’s Vale project in the south.
Nkwe Platinum’s Tubatse and Garatau Projects have a surface footprint of more than 10,500
hectares, underlain by both the Merensky Reef and the UG2 chromitite seam from surface to a depth
of 1,500m.
1.4 COAL MINING INDUSTRY
The coal mining industry is of major significance to the South African economy. The mineral is the
major source of energy in the country, accounting for more than 90% of electricity production, 70%
of primary energy production and 30% of petroleum liquid fuels.
Coal is one of South Africa’s leading mineral
revenue generators. In 2012, revenue from
coal reached R96-billion, making it the
country’s most important commodity by sales
value. This revenue surpassed platinum sales,
although it should be noted that this was a
result of poor performance in the platinum
industry than any significant increase in coal
production. Sixty per cent of South Africa’s
2012 coal revenue was from export sales, showing that coal is a
valuable source of export earnings and contributes to improving South Africa’s trade balance.
The coal industry employs more than 70 000 people and pays about R14.1-billion in wages.
16Coal mining currently takes place in about seven coalfields in the country, but is concentrated in Mpumalanga, in the Central basin, which contains the Witbank, Highveld and Ermelo fields. There are also operations in Limpopo’s Waterberg and Soutpansberg coalfields, and in the Free State. In addition, there are several anthracite mines in KwaZulu-Natal. The Witbank, Highveld and Ermelo coalfields are expected to remain the backbone of South Africa’s coal industry in the coming years, and the Central basin is believed to have sufficient coal reserves and resources to grow total exports to a peak of 90-million tons a year by 2023. However, as these reserves deplete, attention will turn to some of the country’s other coalfields. Production from Limpopo’s Waterberg, Soutpansberg and Tuli coalfields is likely to increase substantially, with these fields having not yet been exploited to their full potential. The Waterberg, in particular, is expected to become a new hub of coal mining activity, with the area believed to represent South Africa’s single biggest opportunity for coal mining growth. The Grootegeluk mine is currently the only operation in the Waterberg. However, the coalfield, which consists of largely untapped resources, is being explored by several companies for steam and metallurgical coal, and several new Waterberg mines are reported to be in the planning and conceptual stages. There are, however, several obstacles to the large-scale development of the Waterberg. The region’s coalfield has thick seams, embedded in siltstones and shales, making extraction more difficult and requiring higher input costs. The Grootegeluk mine has shown that the region requires difficult bench-mining along the lines of a metalliferous quarry, but with each bench being of a different coal type and quality. Complex coal processing and marketing are required. CORPORATE ACTIVITY The coal mining industry is a key contributor to merger and acquisition activity in South Africa, with the industry witnessing a significant number of partnership, disposal and equity transactions, at corporate and operational levels, in recent years. Much of this activity has taken place under the banner of BEE, with the country’s coal mining industry having experienced a higher level of transformation than many of the country’s other mining sectors. This is a result of much of South Africa’s coal being located in shallow deposits and, thus, amenable to opencast mining. Opencast methods are less technically challenging and more Mining in Africa – Focus on Southern Africa | August 2014 17
affordable than underground methods. Much of the opencast mining in South Africa’s coal industry is undertaken by contract-mining companies, resulting in aspiring BEE mining companies facing fewer technical and financial barriers when entering the industry than those present in many other mining sectors. Further, the potential exists for additional BEE activity in the coal mining industry, as significant opportunities exist for BEE operators in this sector, owing to government’s intention to ensure that, by 2018, Eskom procures more than 50% of its coal from emerging black coal producers. LOCAL DEMAND The bulk of South Africa’s yearly saleable coal production is sold locally. Local coal demand is dominated by the electricity sector, which accounts for about 66% of local sales. A further 23% of local coal demand comes from the synthetic fuels (synfuels) industry. Industrial demand accounts for about 5% of local coal demand, the metallurgical industries and small coal merchants each account for about 3% and mining accounts for about 0.2%. ELECTRICITY DEMANDS More than 90% of the electricity used in South Africa is produced in coal-fired power stations. As a result, the key source of local demand for coal is electricity utility Eskom. The utility’s existing demand for coal is in the region of 120-million tons a year and Eskom’s demand for coal is set to increase in the coming years, as a result of the utility bringing two new major coal-fired power stations on stream, among other factors. Eskom’s coal requirements are currently met by 46 mines. Many of these are situated in close proximity to the power stations that they supply – many of Eskom’s power stations are termed “mine-mouth” facilities, where the coal is transported the short distance from the mine to the power station by conveyor belts. Much of the coal supply to Eskom takes place under long-term contracts, many of which operate on a cost-plus basis. Eskom’s coal requirements are rising and are expected to continue to do so. One of the reasons for this increase is that the utility is having to run its power stations at capacity factors higher than those envisaged in its long term supply contracts. Also contributing to the utility’s increasing coal requirements is bringing its two new major coal-fired power stations on line. OTHER DEMANDS South Africa’s second largest consumer of domestic coal, after Eskom, is the synthetic fuels (synfuels) industry, which accounts for about 23% of local coal sales. Synfuels giant Sasol uses about 40-million tons of coal a year to produce about 160 000 bbl/d of fuel, in addition to chemicals. The coal used in the production of synfuels is largely mined by Sasol Mining. The company’s mines in Mpumalanga supply Sasol Synfuels’ coal-to-liquids plant in Secunda, while its Mooikraal mine, in the Free State, supplies coal to Sasol Infrachem’s facility in Sasolburg. In addition, Sasol purchases about five-million tons a year of coal from Anglo Coal’s Isibonelo mine, as part of a20-year external purchasing agreement, which will continue until 2025. Sasol’s coal demand is set to increase in coming years. The company is expanding the capacity of its synfuels plant, in Mpumalanga, which will result in the consumption of an additional 25-million tons a year of coal when the project is completed. 18
RAIL LOGISTICS
The availability of rail capacity is considered to be integral to the success of South Africa’s coal mining
industry, as it is currently structured. It will also be critical in ensuring the success of emerging junior
coal miners.
In the year ended March 2013, State-owned rail utility Transnet Freight Rail (TFR) transported 84.3-
million tons of coal. This included the transportation of 15.1-million tons of coal on TFR’s general
freight lines, and 69.2-million tons of coal on the utility’s coal export line, which runs from the coal
mining areas of Mpumalanga to the country’s main export terminal in Richards Bay, KwaZulu-Natal.
Performance on the coal export line in the year to March 2013 marked a 2.2% increase on the
previous year’s performance, marking an ongoing departure from a previous long trend of volume
declines and stagnating growth on this line. The total capacity of the coal export line is currently
about 72-million tons, which falls short of the Richards Bay Coal Terminal’s (RBCT’s) 91-million-ton-a-
year capacity, reflecting a lack of coordination and planning between Transnet and the RBCT.
Further, the gap between the capacity on the rail line and the export capacity at the RBCT is
exacerbated by the rail line operating below capacity, as a result of locomotive, wagon and skills
shortages, among other issues. TFR turned the corner in 2010 and has recorded improved volumes
on the coal export line since that time.
Meanwhile, Transnet is pursuing a project to
increase the capacity of its coal line from 81-million
tons a year to 97.50-million tons a year by 2020. This
will bring capacity on the coal line to more than the
RBCT’s current nameplate capacity. The planned
expansions to the coal export line form part of
Transnet’s R307.5-billion Market Demand Strategy
(MDS). Expenditure on the coal export line, under
MDS, is expected to amount to R32.4-billion.
MAJOR SOUTH AFRICAN COAL-MINING COMPANIES
CONTINENTAL COAL - www.conticoal.com
Continental Coal Limited (ASX:CCC/AIM:COOL) is a South African thermal coal producer with a
portfolio of producing, development and advanced exploration coal projects located in South Africa's
major coal fields.
Continental currently has three operating mines, Penumbra, Vlakvarkfontein and Ferreira, producing
2.2Mtpa of thermal coal for the export and domestic markets. In 2013/14 Continental is set to
commence development of its fourth thermal coal mine, De Wittekrans which will add 3.6 million
ROM tonnes per annum once in full production.
COAL OF AFRICA - www.coalofafrica.com
Coal of Africa Limited (CoAL) is an emerging developer and producer of high-quality thermal and coking
coal. Based in South Africa, there are three operating collieries and a valuable suite of coal resources
in evaluation and feasibility phases; enabling them to grow well into the future. With good access to
rail and port infrastructure, CoAL can effectively service domestic and international markets; providing
a much-needed resource for economic growth and development for the country and the provinces in
which they operate.
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