Ian Cockerill, CEO, Gold Fields
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» Gold Fields to lose up to R1bn in power crisis
» Eskom sets mines 10% reduction target
» Gold Fields project in 23% cost hike
» Eskom forces SA mines to stop mining
» Gold Fields' reserves down 2%
» S.Africa safety woes hammer Gold Fields output
» SA mining to have 90% power by weekend


Thousands of Gold Fields jobs face the chop
Allan Seccombe
Posted: Thu, 31 Jan 2008

[miningmx.com] -- SOUTH African gold mining bosses are preparing to cut jobs because of a massive power crisis in the country that has left the industry sceptical about future electricity supply commitments -- albeit at reduced levels -- and forcing a revision of gold output expectations, the viability of shafts and future projects.

Gold Fields alone could shed more than 10,000 workers, said a source. Harmony could cut about 2,000 to 3,000 more.

The monopolistic power utility Eskom declared force majeure on 25 January, telling major clients, predominantly the mines, that it could not guarantee electricity supply. The mines immediately stopped production.
Nothing will be sacred
Enough power – roughly half of what the mines normally use – was supplied to keep the mines safe and dry. Power has been gradually increased to 80% and by the end of this week should be at 90%, which will allow mines to resume production.

Even at 90%, a level agreed on between the mining industry and Eskom, there will be a significant impact on production and consequently jobs, which make up 50% of the cost on mines.

The blackout this week and the time it takes to resume production, combined with a holiday interrupted quarter, means Gold Fields will produce 20 to 25% less South African gold in the March quarter than the 657,000 oz in the three months to end-December, said CEO Ian Cockerill.

That translates into a loss of up to 164,250 oz of gold worth $152m or R1bn rand in revenue in the March quarter.

Looking further ahead, during steady state production 15 to 20% of South African output would be lost at 90% power supply. Steady state output is normally around 690,000 oz a quarter.

A reliable industry source estimated that for Gold Fields every one percent decline in production would mean a one percent reduction in its workforce.

Gold Fields employs 52,400 people meaning the top end of job losses in the longer term comes to 10,480 people, a figure that is understood to make the government and unions deeply uncomfortable.

Gold Fields executives declined to comment on the figure or the scale of job losses despite the company saying in its results documents the power crisis could “lead to shaft closures and restructuring.”

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“It’s provocative to talk about job cuts. We need to get a definitive electricity supply and that 90% is not guaranteed in the bank. We are running scenarios at 80% and 90% and we are doing detailed planning,” said Terence Goodlace, head of South African operations.

At 90% of the normal 600 MW Gold Fields uses six marginal shafts within Gold Fields’ suite of 21 South African shafts are at risk. This could mean they are mothballed and power diverted to the high-margin mines. At 80%, nearly half the shafts are at risk.

Cockerill said there was no room to be sentimental when it came to dealing with the crisis.

“Nothing will be sacred and we will look at all aspects of our operations to see us through this period,” he said, adding the focus would clearly be on the high-margin shafts as well as continuing development of South Deep, an enormous mine that underpins Gold Fields’ future.

There are doubts within Gold Fields that Eskom can maintain a reliable electricity supply at 90% given the high level of unplanned shutdowns the provider experiences, which indicates a real problem with maintenance and wear and tear, he said.

Harmony Gold has already undergone a sizeable reduction in staffing levels from 48,000 to 43,500 over the past three months under the leadership of new CEO Graham Briggs.

“We really are being as creative as we can be in dealing with this power situation. We see some closures of portions of operations but not closures of shafts as we are at the moment. However, these are early days,” Briggs told Miningmx.

Evander 7 Shaft, already slated for closure as it nears the end of its productive life, could be an early casualty though. Parts of Bambanani will be closed.

Harmony is likely to reduce the 5,000 contractors working on its mines before retrenching its own employees. The company also has the Phakisa and Doornkop growth projects which will soon need some 2,000 workers. If job cuts are needed at existing mines workers could be re-assigned there.

AngloGold declined to offer comment on the matter, with spokesman Steve Lenahan saying an update would be provided at their quarterly results on 7 February.