Tough times ahead for power hungry SA gold mines

Eskom's request for three consecutive price hikes of 45% would raise costs at South African gold producers anywhere from 15% to 30%

GRONINGEN - 

"It's a pretty tough time to be a gold miner in South Africa," says Anglo Gold Ashanti CEO Mark Cutifani. And, it is a sentiment that is being echoed by his peers at both Harmony Gold and Gold Fields.

Speaking to Mineweb, Cutifani said that not only is the company feeling a lot of pressure from the strong rand but, it is also staring down the barrel of three consecutive 45% increases in electricity tariffs.

Now, while it is well known that Eskom has requested such an increase from the country's energy regulator, the likely impact of such an increase is only now being calculated by those who would be most affected - like gold miners.

Speaking to Mineweb radio last week, Gold Fields CEO, Nick Holland, whose company uses around 580 megawatts of power, said the likely impact of such an increase in crude terms could be as much as a 17 to 20% jump in costs at a group level and around 30% for the South African operations, "That would have a very significant knock-on effect in terms of some of the more marginal operations in our group, the more marginal shafts. Heaven knows what it does to some of the production that's more expensive than we are in the gold sector. Then you've got to add on top of that the knock-on effects in terms of the impact on steel, cement, timber, you name it. So I'm very concerned about this."

Cutifani says that while the efficiencies the group has managed to wring out of its power usage have helped narrow the impact of such increases it will still have a huge impact on the business.

"We are in the range 15 to 25% in terms of the impact on costs because we have significantly improved our consumption but, Nick's numbers are in the ball park, its pretty tough in gold miners. It's also tough on platinum miners and the manufacturers and everyone else as well."

Harmony CEO, Graham Briggs, agrees that the impact is going to be big but adds, "It's a difficult problem because you have to understand it's not only the direct electricity cost. It's actually the cost of your consumables, the steel that you use, and it will impact on salaries, wages and all that sort of stuff. So it's a difficult issue. Our sort of early figures are 15% per annum, so that's a big number. I mean it is a proposal. We need to discuss it. But, you know, a South African gold mining industry is going to take a heavy knock if that happens."

All three men say that the industry is going to be looking for ways to ensure that an amicable solution is found both at an individual and a sector level. Because as Holland says, This is a national issue - it's much bigger than the Eskom problem. We are going to be lobbying extensively with government on this. I think there needs to be a fuller review of this whole situation, and what is the best way to fund it. And certainly increasing electricity costs by 200% in three years is going to have very profound impacts, not just on the mining industry, but on the economy as a whole."

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning,  and concluding, 24 hours later,  in the Vancouver evening.  If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

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responses to this article

Time to say good-bye I think that when you sit back, put your feet up, close your eyes, take a deep breath, and really think it through, the political climate in SA and the grossly inept, almost suicidal management of key government agencies; you will conclude it is . .more time to say good-bye. And maybe take another look in 25 years. . .less by Fred on November 02 2009, 16:37 Find this comment inappropriate? Report it

Eskom = Ek's Dom More corrupt, useless, lazy, government stooges with an attitude problem want bigger company cars and more money for doing less work. Hello zimbabwe scenario. by Kurt on November 03 2009, 03:02 Find this comment inappropriate? Report it

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