Shutdown to continue at S African mines

Shutdown to continue at S African mines

By William MacNamara in Johannesburg

Published: January 27 2008 23:33 | Last updated: January 27 2008 23:33

The shutdown of many South African gold, platinum and diamond mines is expected to continue for several more days, said mining companies on Sunday after a weekend of desperate industry-wide negotiations with Eskom, the state-owned power utility.

Eskom cut off power to a number of mines on Friday in an attempt to mitigate a nationwide electricity shortage that has reached crisis proportions.

South Africa is the world’s biggest producer of platinum and second biggest producer of gold, and confirmation of more production delays is expected to further boost the price of the metals.

“The mining industry was notified that Eskom could only supply sufficient power to put the mines in ‘safekeeping’ mode,” said Harmony Gold, one of the country’s largest mining companies, in a statement.

“In addition, Eskom committed to giving the mining industry four hours’ prior notice of any impending blackouts.”

A representative for Anglo-Gold Ashanti, South Africa’s largest gold miner, said: “During the week we will continue our talks with Eskom in anticipation of moving back to production some time during the course of the week.”

To resume production, gold and platinum mines need about 90 per cent of their normal supply restored. After the weekend talks, Eskom agreed to boost some mines’ power supply to around 75 per cent of normal usage, or enough to maintain vital systems such as ventilation. In return, mining companies committed to voluntary power rationing.

Eskom made no assurances to mining companies of when full power would be restored, saying it could not guarantee uninterrupted supply of electricity to industrial users for at least two weeks and possibly four.

South African gold majors were already operating on thin margins because of the capital-intensiveness of deep mining. The duration of the power crisis could now be all-important for their balance sheets.

“We would be in a very serious situation if the power cuts lasted for two weeks,” said Graham Briggs, Harmony Gold’s chief executive, after the company shut down its mines on Friday.

One day’s loss of production cost Harmony about R60m (￡4.2m, $8.3m), Mr Briggs said. South Africa’s Sunday Times estimated that the shutdown was costing the domestic mining industry R1bn per day.

“Losing a day’s shift is more a frustration than a material concern,” said David Brown, chief executive of Impala Platinum, the country’s second biggest platinum miner. “But we certainly don’t think this is something to endure for more than a few days.”

The stoppage is particularly damaging to the platinum market, as South Africa represents about 80 per cent of the world’s metal output, which is in strong demand for catalysts to clean exhaust emissions.

Eskom has warned that supply constraints could last until 2013, when new power plants are scheduled to be brought on line.