ECONOMY

The threat of downgrading the SA economy to junk status by mid-2017 remains high according to Moodys and Fitch. Unemployment in the third quarter stands at 27.1% – the highest in 13 years.

South African core inflation, which excludes food, fuel and beverages, was 5.7% in October 2016 and accelerated to 6.6% in November. It is predicted that inflation will peak at 6.6% this quarter and then slow down to 5.8% in 2017. Growth is expected to be at 0.4%.

The current account deficit widened in the third quarter as exports dwindled due to lack of demand and a stronger Rand. The gap was 4.1% of GDP, market expectations were for a shortfall of 3.6%. GDP only grew 0.2% in the third quarter.

RAIL

The Governments of Botswana and Namibia have expanded the scope of the Trans Kalahari Rail Line. The line was to have been a dedicated coal export route – however recent feasibility studies have shown that the proposed line will be a multi sectorial line. A full feasibility project has yet to be conducted on the proposed 1 500 km line from the Botswana coal fields to Walvis Bay.

PORTS

Transnet are deepening and lengthening berths 203 to 205 at the Durban Container Terminal. The project is to deepen the berths from 12.5m to 16m and lengthen the berths to 1210m to accommodate three Post Panamax vessels each with a length of 350m.

ENERGY / POWER STATIONS

ELECTRICITY / POWER

There is a call for a full forensic audit of Eskom following the Public Protector’s report and the downgrading of Eskom`s status to BB+ by Standard and Poor. Years of mismanagement have led to a need for unacceptable electricity tariff hikes combined with taxpayers guarantees of R358bn to support the company’s Balance Sheet. Normally, a company with such a poor financial record and the need to prop up its Balance Sheet would not be considered a good financial risk – however Eskom plans to spend R500bn over the next five years and a further R1 trillion thereafter if they are allowed to proceed with a nuclear project. The debt level will drive electricity costs beyond levels most consumers can afford. Fitch has revised their grading of Eskom to BBB-. The uncertainty revolves around the guarantee framework which expires in March 2017.

Eskom have tabled a draft Integrated Resources Plan and the model limits photovoltaic additions to the grid to 1 000 megawatts per year and wind generation to 18 000 megawatts per year. The plan allows for 1 359 megawatts of nuclear generation by 2026. A total of 20 385 megawatts of new nuclear generating capacity by 2050. Eskom has released a R.F.I (Request for Information) for a nuclear plant to be located at Thyspunt situated near Port Elizabeth which will form part of the overall build programme of 9 600 megawatts from nuclear energy.

The second unit at Medupi power station is currently being commissioned – unit 5 was tested up to 756 megawatts. Medupi, on completion will have 6 units producing 4 800 megawatts.

Zimbabwe Power, ZESA Holdings have posted a loss of $224M this year, up from the $112M loss sustained in 2015. The company imported $160M of electricity from Mozambique and South Africa this year, compared to $28M last year. The utility foresees foreign exchange shortages. Zimbabwe has a generating capacity of 1 100 megawatts and a demand of at least 1 400 megawatts. South Africa supplies 300 megawatts to Zimbabwe at a cost of $10.5M per month and Mozambique exports $2.6M of electricity to Zimbabwe per month. The Zimbabwe Government has not allowed Zimbabwe Power to increase its tariffs.

Falling water levels at Cahora Bassa dam in Mozambique are threatening electricity supplies. The dam is at its lowest level in 24 years. Kariba dam, upstream from Cahora Bassa is at 16% capacity and falling. Eskom bought more than two thirds of the electricity production from Cahora Bassa last year. Cahora Bassa has cut its electricity supply to South Africa due to lack of water with one of the turbines. South Africa has an agreement to take 1 300 megawatts, however, this has been reduced to 900 megawatts.

Work has started on the construction of a 900 megawatt coal fired power plant at Colenso. The power plant will be constructed in three phases of 300 megawatts each. The electricity generated will go to powering smelters at the CS Smelter Park which is to be constructed at Colenso. Five smelters will be constructed along with infrastructure.

GAS

Sasol has completed drilling two gas wells in the South of Mozambique and is now developing two commercial oil reservoirs located close to the gas fields in Temane and Pande. In total Sasol will develop 13 wells – five gas wells, seven oil wells and a water well. The two gas wells will produce feedstock for a 400 megawatt gas to power plant. The seven oil wells will supply feed to a liquid processing plant designed to produce 15 000 barrels per day as well as 20 000 MT per year of LPG.

ENI has finalised plans to develop the Coral South Gas project at an estimated cost of $59bn. Six sub-sea wells will be connected to a floating platform with the capacity to produce 3.3M tons of LNG per year. ENI signed a 20-year supply deal with BP. The gas field contains 450bn cubic meters of gas (16tcf). Overall, the Rovuma basin in Mozambique has some 85 trillion cubic ft of gas.

There are currently two major gas projects in SA. There are plans to erect gas to power plants in Richards Bay and Coega – probably using gas from Mozambique or the Ubhubesi field. A further gas to power plant is planned for Saldanha Bay and Eskom is to convert the Ankerling diesel power plant to gas.

The Ibhubesi field has had 11 wells drilled and has an estimated resource of 8 trillion cubic feet.

AUTOMOTIVE

The November new vehicle sales were down by 9.6% to 46 413 units. Exports of vehicles were up by 12.15 to 31 508 units in November. The total sales for 2016 were 547 442 units which was 11.4% less than the sales in 2015. New vehicle sales are expected to drop 12% in 2016 compared to 2015 and the forecast is for a 5% drop in 2017.

COAL

Keaton is awaiting consent to sell their anthracite assets. Their Vaalkrantz mine has been mothballed at a cost of R1.5M per month for care and maintenance.

Resgen is committed to the development of the Boikarabelo coal mine in South Africa. The project has a probable resource of 745M tons from a resource of 1.1bn tons. The first phase will be the production of 14M tons of ROM which equates to 6M tons saleable coal. The second phase, scheduled for 2022, is to step up production to 20M tons of Thermal coal.

Kibo Mining has raised $2.9M as initial financing for the Mbeya coal to power project in Tanzania.

CHROME

Impala Platinum will dispose of its 65% interest in Impala Chrome, an operation which produces 200 000 metric tons of chrome concentrate per year by processing some 4M tons of tailings per year.

NICKEL

Norilsk Nickel has filed a claim against BCL of Botswana. In 2014 Norilsk agreed to sell its operations in Africa to BCL for $357M. BCL did not abide by this obligation and the company has now been placed in provisional liquidation. The fallout of this could affect the Tate Nickel and Selkirk projects.

IRON ORE

Anglo American will sell its 9.7% stake in Exxaro.

MINERAL SANDS

Predevelopment work has started at the Mutambo mineral sands project in Mozambique. The resource is estimated at 3.5bn tons at 3.8% total heavy minerals.

The Kwale project in Kenya produced 3M tons of ilmenite after commissioning a hydraulic mining unit. Production in the last quarter was 16 982 metric tons of ilmenite, 22 870 metric tons of Rutile and 9 050 metric tons of Zircon.

TIN

Bushveld Minerals plan to acquire the Uis Tin Project in Namibia. The project is an open cast mine with three licences one of which shows potential resources of over 900 000 metric tons of tin. A due diligence is being carried out which will be completed by March 2017.

GRAPHITE

Armdale has declared an estimate of 40.9M tons of 9.4% total graphitic content for its Mahenge Liandu graphite project in Tanzania.

COPPER

Zambia is expected to produce 740 000 metric tons of copper this year. Production has been hampered due to the lack of electricity.

Alecto Minerals is looking to acquire 100% of the Mowana copper mine in Botswana. Some UK Sterling 1.4M has been raised for the re-start of the mine. The mine produced 9 247 metric tons of copper in 2014.

Ivanhoe Mines have announced a high grade copper deposit at the Kamon-Kakula project west to the Kitwe belt in the DRC. The plan is to develop a mine producing 209 000 metric tons per year of copper building to 262 000 tons per year in year three.

Galileo Resources will start a drilling process at its Concordia project in the Northern Cape in the first quarter of 2017.

The T3 Copper and Silver project in Botswana has revealed that it could support a 2M ton per year operation to produce 21 800 metric tons of copper and 665 000 oz of silver over a ten-year period. A prefeasibility study will be undertaken in 2017.

ZINC

Mining is starting at Gamsberg with the first ore expected in 2018. The first phase is a 4M ton per year open cast mine which will produce 250 000 metric tons of zinc concentrate. The manganese content of the process will be sent to Skorpion mine.

RENNIES SHIPS AGENCY (PTY) LTD
JANUARY 2017