S African power cut drives up gold prices

S African power cut drives up gold prices

By Alec Russell in Johannesburg and Javier Blas in London

Published: January 25 2008 18:05 | Last updated: January 25 2008 18:05

Gold and platinum prices hit an all-time high after South Africa’s main precious metals mines were forced to close on Friday for lack of power as the government said the country faced a “national electricity emergency”.

The halt in mining operations came after the embattled state electricity company Eskom said it could provide only about 50 per cent of the mines’ usual needs. In a sign of the country’s power crisis the government announced drastic new measures to ration electricity.

Mining executives warned of a potentially devastating impact on the industry, a mainstay of the economy, as Eskom said the mines might have to stay closed for up to six weeks.

The prospect of a long stoppage pushed spot bullion in London to a record of $923.4 a troy ounce while platinum jumped to an all-time high, above $1,697 an ounce. South Africa is the world’s largest platinum producer, with a global market share of nearly 80 per cent, and the second largest gold producer.

Rhodium also jumped to a record of more than $7,000 an ounce, as the country accounts for more of 70 per cent of the world’s supply.

Precious metals traders warned that soaring prices of platinum and rhodium would hit the motor industry, as both metals are a key components of the autocatalysts used to clean tailpipe emissions.

AngloGold Ashanti, Gold Fields, Harmony Gold and the world’s two largest platinum producers, Impala Platinum and Anglo Platinum, were all hit by the power problems.

Ian Cockerill, chief executive of Gold Fields, said the company was working at “survival rates”, only keeping the mines pumped out and ventilated.

“We don’t know how long this will be. We are looking at various scenarios such as limited production and concentrating on higher-value areas,” Mr Cockerill said.

The closure capped a fortnight of rolling blackouts nationwide as the country, which just a decade and a half ago aspired to power the region, has faced the embarrassment of running out of electricity.

The government has issued a rare apology to the nation, saying it failed to anticipate the high levels of economic growth, which have fuelled demand. Analysts blamed it on the government’s indecision over privatisation a decade ago.

Analysts warned that the economy would suffer from the mining industry stoppage. However, Alec Erwin, South Africa’s public enterprises minister, said that if people became more energy efficient the economy would not be affected. “It is...critical to stress that the growth of South Africa’s economy at the current healthy levels can continue if we change our behaviour and become more energy-efficient.”

But Eskom executives accept that even if the new measures are rigorously enforced and swiftly implemented, South Africa will still lack electricity for the next five years, given that its reserve margin is all but exhausted.

Eskom is developing an expansion programme but the first of its planned large new power station only comes on stream in 2013.

The power outage comes just a week after South Africa lost its century-old position as the world’s top gold producer in favour of China. Last year, the country’s gold output declined 12 per cent to 272 tonnes, below the 276 tonnes produced by China.