SA minings gain amid power crisis

THE toll Eskom’s electricity crisis took on SA’s mining industry went largely unnoticed amid substantial profit increases, based on strong metals prices in the first half of this year, that companies posted recently. In late January, Eskom switched off power to the mining industry when it was hit by a combination of a maintenance backlog, rundown coal stockpiles and rising demand. Power was restored five days later, but at a reduced level. The utility has announced a massive capital investment programme to add new capacity, but this will not come on stream until at least 2012. Although the South African public enjoyed a relatively uninterrupted electricity supply throughout the winter, the reserve margin is tight and the risk of another crisis persists. Chamber of Mines CE Mxolisi Diliza, who has made strong representations to cabinet ministers, says the large deep-level gold and platinum mines have battled to operate their electricity-intensive operations on 90 percent of their normal electricity supply. Even mines that applied for and were granted slightly more than 90 percent power to avoid retrenchments were battling. "The switching on and off of large equipment has severely disrupted production processes, reduced economies of scale and led to more upward pressure on cost inflation in the industry," Diliza says. Other, non export sectors of the economy, including households and public buildings such as retail malls, government and office complexes, made only small reductions in electricity usage. Households cut electricity usage two percent and the government and commercial sector five percent. "Does the government want to keep the country’s key export sectors artificially depressed via curtailment of electricity supply, or has this position transpired by default?" Diliza asks. Gold Fields says production from its South African mines dropped 21 percent in the March quarter and 16 percent in the June quarter because of reduced power supply from Eskom. Anglo Platinum, the world’s biggest platinum miner, lost 30000 ounces of production in the six months to June from electricity supply constraints, while Kumba Iron Ore, SA’s biggest iron-ore producer, lost 24000 tons. But the effects went beyond lost production to rising costs and postponement of expansion projects. Kumba says that to save power it has stopped using electricity to power its fleet, and is using diesel instead, but at a time when fuel prices have reached near-record levels this has caused fuel costs at Sishen Mine to soar 62 percent year on year. Gold Fields says electricity costs rose 14,8 percent from April 1, and the regulator gave Eskom permission to increase charges 20 percent from July 1 and potentially another 25percent from April 1 next year. This, with other input cost increases, will have "a significant detrimental effect on future cash costs", the company says. Merafe Resources says reduced power supply has offset the increase in production from bringing furnaces back into commission and from its expansion project, Lion Ferrochrome. Merafe is operating on only 90 percent of its previous power, and "uncertainty remains as to when the remaining 10 percent will be restored". Ferrochrome, of which SA is a leading global producer, is highly power-intensive because it requires smelters for processing. Merafe says it will time its Lion phase 2 expansion, which will have a capacity to produce 350000 tons of ferrochrome a year, to coincide with the availability of sufficient power. Impala Platinum chairman Fred Roux says the lack of guaranteed power has not only caused a three-year delay in the group’s original target of expanding output to 2,5 million ounces of platinum by 2012, but has prevented it from considering further expansion. — Business Day. ---The Herald