January 29, 2008

Eskom costs stricken mines R193m a day

Resources Editor

TODAY SAs mines enter their fourth day without enough electricity to work underground, with each day of lost production costing the sector up to R193m.

While a task team set up at the weekend including representatives of mining, labour, government and Eskom agreed to restore 70% of the mines normal power needs today, this is not enough for full operations. It is the minimum needed for essential maintenance and servicing, including support of working areas, pumping and ventilation.

Without those activities, the mines become unsafe and can become inoperable.

Another industry-wide meeting will be held midweek with Public Enterprises Minister Alec Erwin to discuss the possibility of building up power supply to about 90%, which would enable production to resume.

Gold Fields spokesman Willie Jacobsz said the task team would work out what the 10% cut in power that the mining industry had been asked to implement would mean for the industry and how it could be achieved.

Mining accounts for about 15% of SAs electricity demand.

Depending on the outcome of this weeks meeting, the mining industry could be without sufficient power to work underground for three to six weeks.

The mining shutdown could have huge implications for economic growth. Plans to sustain faster growth may be thwarted at least in the near term. This is grim news, as SA had been expected to sustain an average annual pace of growth of 5% clocked up over the past four years its fastest in 25 years.

The economic cost is potentially enormous, Nedbank chief economist Dennis Dykes said on Friday. We have revised our growth forecast for the year down to about 3% from 4%.

The shutdown has hit the JSE hard, with the gold mining index dropping 6% on Friday after news that SAs big mines had suspended underground operations.

The news also weakened the rand, with a 2,4% drop to R7,15 to the dollar by mid-afternoon.

However, gold surged to a new record of $924/oz and platinum peaked at a new high of $1694/oz, reflecting investors anticipation of a shortage of the metals, of which SA is one of the biggest global producers.

In the past few weeks electricity shortages have hit households, industry and shopping malls, but until last week industry was implementing voluntary, not compulsory, load shedding.

Gold Fields said its South African operations produced about 7000oz of gold a day ( equivalent to $6,4m or R46m in revenue a day). Impala Platinum said it was losing about 3500oz of platinum a day (worth $5,9m or R42m).

Anglo Platinum said it could not disclose production or revenue losses because it was in a closed period, while parent Anglo American said it had not yet quantified the effect across its operations. Anglo American CEO Cynthia Carroll flew to SA yesterday to meet government and Eskom representatives today and to chair an internal steering committee on energy issues, said spokesman Pranill Ramchander.

SAs mining sector employs about 460000 people but indirectly supports about 5-million, according to statistics cited last year by outgoing Chamber of Mines president Lazarus Zim. Data from Statistics SA for the three months to October suggest SA would lose up to R193m a day in mineral sales if all mines were affected.

The big mining groups, including Anglo Platinum, Impala Platinum, Northam Platinum, Lonmin, Gold Fields, Harmony Gold, De Beers and Merafe Resources, have reported a halt to some or all activities, while the smaller groups continue to operate.

Jacobsz said the weekend meeting was productive and we are moving in the right direction.

What everybody understands is that it is not just a question of switching the power back on, but switching it on and sustaining it.

Anglo Platinums Trevor Raymond said mining companies needed clarity from Eskom on what was possible, as the mines could do a number of things to adapt to the situation, whether by rationing or load shedding. With Mariam Isa

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