Platinum miners tear into Eskom

�

�

Ian Rozier, CEO, Eastplats

� Lonmin expansions wait for Eskom decisions
� Helping Eskom out of a hole
� Simmers plans gold expansions
� Miners make a plan on Eskom
� BHP Billiton bites the Eskom bullet
� Fresh power woes rattle SA miners

Click here to find out more about how to use this button

Platinum miners tear into Eskom
Brendan Ryan
Posted: Mon, 19 May 2008

[miningmx.com] -- SOUTH African power utility Eskom was heavily criticised at a platinum conference held in London by RBC Capital Markets.

Eastern Platinum CEO Ian Rozier told delegates, �Eskom gives us guidance on a daily basis but that does not actually mean a lot. There seems to be a lot of the right hand not knowing what the left hand is doing."

�We have to go on what we are experiencing and it�s not good,� he said.

Another platinum company CEO interviewed at the conference was even more pointed although he spoke on condition he remained anonymous.

he would be in jail by now

�If the CEO of a listed company were to put out the amount of misinformation to the market that Eskom has done he would be in jail by now,� he said.

The reason for the frustration is the uncertainty over what power Eskom will be able to make available for the various new mines and smelters that the juniors are planning to bring on stream.

The clear message at the conference was that all the juniors are looking at self-generating much of the power they will need.

While this will add to capital and operating costs the expenditure is acceptable given expectations current high platinum group metals (pgm) prices will continue for several years at least.

According to David Russell, acting CEO of AIM-listed Braemore Resources which intends building two smelters and a base metal refinery in South Africa, being independent of Eskom could be beneficial.

He said South African companies had been �spoiled� previously because of easy access to Eskom�s reticulated electricity.

He told delegates, �In Australia, major resource projects including global nickel producers are entirely self-sufficient for power generation. Availability of power is not an issue for remote mining and processing projects because self-sufficiency is part of the operating and capital costs of doing business.�

Russell highlighted generating plants using heavy fuel oil (HFO) as the way to go as these were far cheaper to run than diesel powered generating plant. An added benefit, according to another platinum executive, is that �you can�t run a car on heavy fuel oil so it does not get stolen.�

RBC Capital Markets analyst Leon Esterhuizen said the firm had turned more negative on the likely impact of the Eskom crisis on South Africa�s forecast total platinum output.

Click Here to subscribe to our daily newsletter

�This is a major change from our previous view that the electricity problem should be resolved without significantly impacting PGM production,� he commented.

As a result he believed the platinum industry had no choice but to generate its own power.

"Junior producers, in particular, are at risk of having to delay production as a result of not being able to find one of the major producers to smelt and refine their material before the electricity constraint is dealt with," Esterhuizen said.

Esterhuizen highlighted Eskom�s exposure to assumptions it had made on the volume of power it could access from sources outside of its own. Current Eskom planning called for 1,000MW coming on-line in 2010 and another 1,000MW to follow in 2011.

Half of that was to be supplied from two open-cycle gas turbines to be built by US company AES. The South African government cancelled the contract in April citing technicalities while AES said the conditions attached were no longer worth the investment risk.

"The most important thing to note about Eskom�s current forecast is that it includes a rather large 'hope' for meaningful power generation outside of Eskom over this timeframe," Esterhuizen said.

�The non-Eskom portion of the projected power generation is clearly crucial if South Africa is to ever get out of this energy crisis assuming a modest GDP growth of only 4% per annum," he said.

The bottom line was a "very real and very high probability" that South African PGM production would not grow anywhere near current forecast rates of 5% to 6% per annum for at least the next four years, and more than likely for some time beyond that, he said.

�The electricity problem is not just a four year problem. Given the pent-up demand that will be waiting for electricity to come on-line we believe the current squeeze will easily last for more than eight years," he said.

�The only way the problem can be solved will be for the industry to generate its own power."

�