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Mar 16, 2012

16/03/2012 (On-The-Air)

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Every Friday morning, SAfm’s AMLive’s radio anchor Xolani Gwala speaks to Martin Creamer, publishing editor of Engineering News and Mining Weekly. Reported here is this Friday’s At the Coalface transcript:

Gwala: Firstly, that story that has been going on now for quite a while, the South African government has been going all out to ensure that platinum company Implats is being fairly treated by the government of Zimbabwe.

Creamer: This has been revealed by no less then the CEO of Implats David Brown, who said that the government is being very supportive and needs to be because we have got a bilateral agreement with Zimbabwe.

The treaty insists that fair compensation is paid for any assets that are traded there. We have a situation where the Indigenous Affairs Minister Saviour Kasukuwere has been engaging a lot of drum beating and he has forced Implats to the table.

The inprinciple agreement that they have reached there, when he analysis it he will find that he has been out-smarted. Of that 51%, if you look at the 10% that will go to the community that is a normal transaction we do in South Africa everyday.

The community gets these shares on the basis of vendor financing, in other words Implats gives them a loan, which is either interest-bearing or non-interest bearing.

This will be non-interest bearing so they won’t pay interest on it, but as they get their dividends they have got to pay off the loan. The 10% that goes to the workers of Zimplats, it's the same sort of thing as vendor finance. Implats gives the loan and they have to pay it back in dividends, but in this case it is interest-bearing.

The crucial one is the 31% that goes to the State Indigenisation Board and this is were Implats have out-smarted Zimbabwe, because they’ve said that it has got to be in cash and they will only talk about it after the Zimbabwe government compensate them for the land that was offer to them because they weren’t going to use it.

So, when you compensate us for this, because you are not giving us empowerment credits for that, then we will open up 31% for sale to you at a fair market value determined by independent professionals and then you pay in cash. That is a deal that the State of Finances in Zimbabwe is just not going to meet.

The first two deals with the 20%, 10% to the community and 10% to employees, is something we do regularly in South Africa. The 31% is going to be the sticking point and that is the point that is going to be dragged out.

Gwala: So in other words, the Zimbabwean Minister is going to go back to his office and when he looks at the deal he is going to say, wow what happened here?

Creamer: Exactly, and he has agreed to it in principle and now the technical teams will work out the timing and the valuation.

Gwala: South Africa wants to take a leaf out of Canada’s book to save its ferrochrome business from collapse.

Creamer: Forty years ago the potash business in Canada was in dire straits, just like our ferrochrome business is now. There was an oversupply of potash and they were heading for a depressed price situation in potash for a prolonged period. We are heading for depressed price here.

Although this ferrochrome business supplies R42-billion a year to our gross-domestic product and it employees 200 000 people, if things go on as they are, we are going to lose 80 000 of those jobs and we are going to halve that contribution to GDP.

What they are saying is that in addition to this temporary measure of an export tax of R100 a ton, which hasn't really be gazetted yet, let us go for the longer-term measure that was adopted in Canada by Canpotex to project the potash industry.

That potash industry in Saskatchewan is very strong. We saw that when BHP Billiton, led by South African Marius Kloppers, got a bloody nose when they tried to interfere with that system by trying to take it over recently.

The ferrochrome industry is now looking to get the same sort of deal for our ferrochrome. South Africa is now facing a big oversupply of chrome, because the platinum miners are also having to mine UG2 and they have got a chrome stream coming in from that. That is the chrome that is getting to China and you can’t blame the Chinese for using because they turn it into ferrochrome.

They don’t host any chrome and they were getting a lot of their chrome from India. India said that they don’t want to give them chrome, they’ll give them ferrochrome and they intervened immediately and you can see the ferrochrome upliftment. The South Africans have stepped into that gap and now supplying China with that raw ore, unbeneficiated before it becomes ferrochrome, and that is what is damaging our business.

They are looking at what happened in 1972 in Canada and saying why can’t we model the ferrochrome business on this, where we give credits to people who sell their chrome to local beneficiators and we organise a balance for the export of raw-chrome and that way we can not only sustain our business but we can actually grow it and get more out of it.

Gwala: South Africa’s Sasol is taking steps to general electricity from neighbouring Mozambique’s natural gas.

Creamer: Sasol has been getting natural gas from Mozambique for some time now and one of the promises they made when they started getting it several years ago was that they will also make sure that some of that gas is consumed locally inside Mozambique.

So they are in the process of putting up a 140 MW gas-fired power plant at the Ressano Garcia in Mozambique. The feasibility study is well underway. It will be modelled on the exact same 140 MW that we have got at Sasolburg. It cost us about R1,8-billion and was designed by the Finish company Wartsila. We see it is going to be producing from 2013.

Gas is something Sasol is becoming more involved in. We know them for turning coal into petrol and diesel, but more and more they are bringing in a stream of natural gas. They have had it in Sasolburg for sometime now and its from Mozambique that they are converting their chemical streams. We know that they are also now involved with shale-gas in Canada.

We can see the people who complain about our fracking in Karoo, there they are doing it in a first world country that really looks after its environment. We know that fracking takes place close to New York as well. So to stop us in the Karoo would be unfair, but in the meantime we have got Sasol engaged in shale-gas activities in Canada. Also, in Qatar they turn gas in to liquids, quite a big plant they have got there. They haven’t forgotten their coal because we see now that they have just invested R14-billion in replacement coal mines in Secunda.

That will be something that will sustain 4 000 jobs. Coal-to-liquids is a little bit on the back seat, they prefer the gas, because its like a bridge to the lower carbon economy, but in the meantime we can see they are looking for a solution to the CO2 problem from coal. They are still very much involved with coal in Secunda with replacement coal mines.

Gwala: Thanks very much. Martin Creamer is publishing editor of Engineering News and Mining Weekly, he’ll be back with us at the same time next week.

Edited by: Creamer Media Reporter

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