Highlights from Mining Indaba

Cape Town, South Africa – The keynote session at the Mining Indaba conference in Cape Town, South Africa, saw leaders from many of the world’s largest mining houses step to the podium to discuss what their companies have been up to over the last year and where each is headed, particularly in Africa.

The session started out with a talk by the Minister of Minerals and Energy from South Africa, the Honourable Buyelwa Sonjica. In the face of her country’s power crisis, she spent some time urging miners in South Africa to continue their efforts to reduce energy consumption and assuring miners that her government was working hard to seek solutions to the crisis.

The key, she stressed, is to allow for continued economic growth in the short term while re-developing an energy reserve margin.

To increase power output, South Africa needs to strive towards realizing projects that can give near-term energy solutions. Sonjica was particularly pleased about the projects getting underway in the Springbok Flats energy complex, which would allow the country to produce uranium, coal, coal-to-liquid projects, and cogenerated power.

On other topics, Sonjica urged all holders of old mineral rights in South Africa to apply for Mineral & Petroleum Development Act conversion to new rights, after the Act’s amendment in 2007. She spoke of the desire for greater South African beneficiation from mining, arguing that without increased benefit the country will be unable to meet its social development goals.

The next keynote speaker was the CEO of Rio Tinto (RTP-N), Preston Gerald. Three of Rio’s four divisions aluminum, iron ore, and copper are particularly exposed to changes in the economic growth of the world’s emerging markets; the magnitude of those changes in the face of the US economic turndown is of course a key question. However Gerald stressed that the diversity of Rio’s portfolio acts as a natural hedge against coming price fluctuations.

Rio undertook several key divestments in 2007 in order to help cover roughly $15 billion of the $39-billion acquisition of Alcan.

In terms of Rio’s investment in Africa, Gerald discussed the company’s current operations and strong pipeline of development projects. In Namibia Rio runs the Rossing uranium mine, which started three decades ago and is now a key part of the Namibian economy. Two years ago the company announced a $112-million investment to upgrade the mine, now complete, and further expansion studies currently underway should be released later this year.

The QIT Minerals mine in Madagascar mines high quality ilmenite to produce a high-grade titanium dioxide slag. The first phase of this new mine is scheduled for completion later this year, designed to produce 75,000 tonnes per annum. Further phases could double that capacity.

Gerald was particularly excited about the prospect of a new iron ore province in Guinee, where he says Rio has its sights on an underdeveloped iron ore deposit in the eight to 11 billion tonne range. Plans now call for a 70 million tonne per year operation but Gerald says there’s little doubt the project can support much larger volumes.

All of the majors speaking at Indaba dedicated some time to the challenges of working in areas plagued by HIV/AIDS and malaria, widespread abject poverty, and lack of basic infrastructure. Indeed Xstrata (XSRAF-O, XTA-L) dedicated its entire presentation to describing the company’s HIV/AIDS program. Some 17% of Xstrata’s employees in South Africa are HIV positive, leading to a myriad of challenges on a mine operations level. Xstrata has developed a three level approach to address such challenges, through which the company is having reasonable success in reducing the impact of disease and poverty on mine operations and in improving health conditions in the area in general.

Barrick Gold‘s (ABX-T, ABX-N) executive vice president of exploration Alexander Davidson spoke to Barrick’s last eight years in Africa and the fact that, despite the company’s history of indecision in terms of African involvement, Barrick is now fully committed to continued work in the continent.

Barrick in Africa, one of the company’s four units, currently operates primarily in Tanzania. In that country Barrick currently holds 17.4 million ounces of proven and probable gold reserves, plus 1.7 million ounces of measured and indicated reserves. The company faced several serious challenges to its three operating mines this year, including high rainfall leading to pitwall instability at Tulwaka and North Mara and a 1,000-person strike disrupting operations at a Bulyanhulu.

Importantly, Davidson said the company’s Buzwagi gold mine in Tanzania will be in production next year, at a cash cost of under $300 per ounce. It will be the next mine for the largest gold producer in the world and will be the second largest mine in Africa, with a 10-year mine life. Production is estimated at 250,000 oz. per year.

Jeffrey Huspeni, regional vice president of African operations for Newmont Mining (NEM-T, NMC-N), told the assembled crowd that while Newmont in Africa is still focused in Ghana the company is planning on expanding that focus.

At Newmont’s Ahafo gold mine cumulative production will surpass 1 million oz. in mid-2008. Huspeni was excited that the company had taken strides in recruiting experienced local and expatriate talent to the workforce, passed a fatality-free year, developed along with partners Gold Fields (GFI-N, GOF-L), AngloGold, and Golden Star Resources (GSC-T, GSS-X) a 80 MW power plant for the Ghanian power grid to ensure long-term reliable power, and increased mining efficiencies. Exploration in the area has uncovered several prospective mineral targets along Ahafo’s 40 km strike length, which already encompasses two operating areas.

Newmont focused work at the Akyem gold project on optimizing the development plan in the face of escalating capital and operating costs as well as the challenges of a large deposit confined to one pit. Huspeni called the layout of the deposit both a “blessing and a curse”.

AngloGold Ashanti‘s (AU-N) Richard Duffy, executive vice president of business development, spoke to the importance of African operatiosn for his company. Roughly three quarters of AngloGold Ashanti’s 2007 production and two-thirds of its cash gross profits came out of Africa. The company operates seven underground gold mines in South Africa alone. In terms of Greenfield exploration, the DRC is the company’s main focus within Africa. Duffy was also excited about mineral exploration in Guinee and about three new joint ventures in Mali.