AngloGold warns on power costs

Allan Seccombe | Mon, 02 Nov 2009 09:22
[miningmx.com] -- ANGLOGOLD Ashanti reckons the proposed South African power tariff could boost the company’s costs by 15-25% in three years, which will have a serious impact on production and jobs if it goes ahead, said Mark Cutifani, CEO of the world’s third-largest gold producer.

AngloGold, which is targeting output of between 4.5 and 4.6 million ounces of gold this year, generates about 40% of its production in South Africa.

Eskom, the state-owned power company, has asked regulators to approve annual tariff hikes of 45% over the next three years on top of the 31% that became effective in April this year. Eskom has a massive capacity expansion programme to meet South Africa's rising energy needs.

Cutifani said he didn't think the 45% tariff increase would be implemented and that it could be a third of that once the full implications of the hike would be on industry and jobs.

The impact of the power tariff combined with a strong rand could be critical for gold miners, who’ve not had much benefit from record high gold prices recently because of the strength of the rand against the dollar.

AngloGold reckons the power tariff, if it is approved, could add 15% to 25% to costs at its South African operations at the end of those three years.

“It’s not as simple as just power. The exchange rate, as we speak today, a much bigger issue for us. The power costs are a second issue, but put the two together it’s very serious for the whole industry and I think everyone is looking pretty hard at what they can do and what they can manage going forward,” Cutifani said.

“There are areas in our operation that are not making money at these sorts of costs and we have to look very seriously at what we have to do,” he said.

As part of this, AngloGold is to embark on a six-month review of its South African assets, which could possibly result in job losses.

"AngloGold Ashanti will be accelerating its restructuring work in South Africa as a necessary step to make sure we remain profitable and a long-term global operation in our South African business," Cutifani said.

The review will start in January and will, in part, look to improve operating processes at the South African operations. If that doesn't yield results then AngloGold would have to "look at more radical things," he said.

The concern is that the South African gold mining industry will go from one having competitive power costs to one that isn’t. “It will put us well ahead of many of our competitors in the industry in terms of power costs, so I think it’s time for us all to come together,” he said.