Mining execs converge at South Africa’s Indaba

CAPE TOWN, SOUTH AFRICA — The keynote session at the recent 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, 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 them 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 redeveloping an energy reserve margin.

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

On other topics, Sonjica urged 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 South Africa to see greater benefits from mining, arguing that otherwise, the country will be unable to meet its social development goals.

The next keynote speaker was the CEO of Rio Tinto (RTP-N, RIO-L), Preston Gerald. Three of Rio’s four divisions — aluminum, iron ore, and copper — are particularly exposed to changes in the economic growth ofthe world’s emerging markets; the magnitude of those changes in the face of the U.S. economic downturn 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 is undertaking several key divestments in order to help cover roughly US$15 billion of its US$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 opened three decades ago and is now a key part of the Namibian economy. Two years ago the company announced a US$112-million investment to upgrade the mine, now complete, and further expansion studies currently under way should be released later this year.

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

Gerald was particularly enthusiastic about the prospect of a new iron ore province in Guinea, where he says Rio has its sights on an underdeveloped iron oredeposit in the 8-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 concerns, through which the company says it 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 and corporate development, Alexander Davidson, spoke about the company’s last eight years in Africa and the fact that, despite its history of indecision, Barrick is now fully committed to continued work in Africa.

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

Davidson said the company’s Buzwagi gold mine in Tanzania will be in production next year, at a cash cost of under US$300 per oz. It will be the next mine for the largest gold producer in the world and 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 (NMC-T, NEM-N), told the assembled crowd that, while Newmont in Africa is still focused in Ghana, the company is planning to expand that focus.

At Newmont’s Ahafo gold mine, cumulative production will surpass 1 million oz. in mid-2008. Huspeni said the company had taken strides in recruiting experienced local and expatriate talent to the workforce, passed a fatality-free year, increased mining efficiencies, and developed along with partners Gold Fields (GFI-N, GOFD-L), AngloGold Ashanti (AU-N, AGD-L), and Golden Star Resources (GSC-T, GSS-X), an 80-megawatt power plant for the Ghanian power grid to ensure long-term reliable power. 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 Richard Duffy, executive vice-president of business development, spoke about the importance of African operations 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 Democratic Republic of the Congo is the company’s main focus in Africa. Duffy was also upbeat about mineral exploration in Guinea, as well as the company’s three new joint ventures in Mali.