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» Eskom was not honest about seriousness of situation - Graham Briggs, CEO, Harmony
» Eskom sets mines 10% reduction target
» Anglo's Carroll on emergency power mission
» SA mines could remain shut for up to six weeks - Eskom
» Eskom coal reserves dwindle
» Eskom forces SA mines to stop mining

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S.Africa power crisis bites deep
Allan Seccombe
Posted: Mon, 28 Jan 2008

[miningmx.com] -- THE news coming out of South Africa’s mining sector on Monday is bleak after Friday’s industry-wide shutdown because of electricity shortages after power utility Eskom declared force majeure on Friday.

Emergency meetings were held over the weekend, where the mining industry agreed to reduce power consumption by 10% as its contribution towards easing the strain on the over-stretched state power utility Eskom.

Mines are currently receiving between 50 and 75% of the power they need. It’s not enough for full production and many are implementing measures to keep mines dry and safe until work can resume.

“This is a major blow to the South African economy. The South African rand will be volatile but shaking business confidence in the economy may not be good for the rand,” said John Meyer, head of resources at Fairfax.

The Johannesburg bourse was awash in red, with all sectors feeling the pain of investors' anxiety. The mining index was down four percent, gold down two percent and platinum off 2.5% by late afternoon trade on Monday.

Anglo American, the JSE bellwether share, was down a massive seven percent in trade worth nearly R1.2bn. Impala Platinum was down almost three percent.

Impala Platinum is one of many companies updating the market on Monday about the impact on production of the shutdown.

Impala Rustenburg is losing 3,500 oz of platinum a day and its Refining Services is receiving reduced concentrate flows from suppliers who are also feeling the power squeeze.

“Currently Implats is receiving 50% of its power requirement and shifts were resumed at Impala Rustenburg last night. We are endeavouring to optimise our operations against our power allocation. Marula mining operations are currently operating in the same manner,” Impala said in a statement.

“The full production and financial impacts will be estimated and communicated as soon as possible.”

Furious mining house bosses will meet Eskom and government officials on Tuesday to plot a way forward. Gold and platinum prices are at record highs, pushed even higher by events in South Africa, the leading supplier of these metals. Lost production means lost exposure to the gold price.

Some analysts estimate the gold sector will lose 27,000 oz of gold a day worth roughly $23m in lost revenue.

Junior gold producer Simmer & Jack estimated lost production at 500 oz a day from its Buffelsfontein mine.

“We urge Eskom to explain to the public what they are doing to deal with the deterioration of existing systems that have led to this situation,” said Simmers CEO Gordon Miller.

Eskom said in a letter to the mines it had no option but to cut power to maintain the integrity of its national grid.

"All pre-arranged emergency options have been used and exhausted. The system is extremely vulnerable and any unforeseen events could have consequences on a national level," Eskom CEO Jacob Maroga said in the letter.

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Harmony’s chief operating officer Alwyn Pretorius said if the company continued to receive just 75% of its electricity requirements it would, in two weeks, have to close half its mines.

A brighter note was sounded by Anglo American, where its three export mines have resumed full production and a fourth, Kleinkopje, is operating at reduced levels in line with an agreement with Eskom to reduce power consumption, said spokesman Pranill Ramchander.

Three Anglo mines dedicated to supplying Eskom with coal were unaffected by Friday’s force majeure notice from the power utility as was another supplying coal-to-liquid fuel producer Sasol, he said.

Anglo CEO Cynthia Carroll has flown to South Africa for high-level meetings with the government and Eskom. Ramchander was unable to provide an update on these meetings.

Anglo is the largest company on the Johannesburg bourse.

BHP Billiton’s coal mines continue to operate unhindered, said spokeswoman Bronwyn Wilkinson. The company supplies Eskom with some 15 million tonnes of coal a year.

“We are pretty close to our contractual obligations and the quality of the coal we are providing to Eskom is within specification,” Wilkinson said. “The rain has made production difficult, but we are managing.”

However, BHP Billiton's aluminium smelters continue to be hit by sporadic blackouts in South Africa and Mozambique. The problem has been ongoing since September, she said. Manganese mining has halted and alloy production in South Africa has been curtailed. One of the excuses Eskom has proffered for the blackouts is that the coal going into its power plants is wet, this being South Africa’s rain season. The other is that stockpiles at some power plants have been run down.

There is also unscheduled maintenance of power plants further reducing the electricity Eskom is generating.

The unions have raised hell about the mine stoppages, fearing that jobs will be lost in the sector which employs some 460,000 people. Economists have raised concerns about foreign exchange earnings if mining is halted for long.

Trade union Solidarity wants President Thabo Mbeki to declare the power crisis a disaster under the Disaster Management Act whereby the government will provide a capacity and the finances to manage the event.

“It is clear that the Eskom crisis is of such proportions that the community cannot possibly resolve it. It therefore meets the definition of a disaster as contained in the Disaster Management Act and government is obliged to get involved in order to avert a complete economic collapse,” said Dirk Hermann, deputy secretary general of Solidarity.

If the current energy crisis continues, it could knock one to two percent off South Africa’s gross domestic product (GDP) in the worst-case scenario, Efficient Group’s chief economist Dawie Roodt told I-Net Bridge.