HomeBase MetalsGrim outlook for SA mining

Grim outlook for SA mining

Matala “’ one of
Eskom’s many
power stations
Johannesburg, South Africa — MININGREVIEW.COM — 27 January 2010 – South Africa’s mining industry has painted a grim outlook for itself at the National Energy Regulator of SA’s (Nersa) 10th and final public hearing on Eskom’s application for huge tariff increases.

Chamber of Mines assistant adviser Dick Kruger called on the government to inject at least R7 billion into Eskom to bring its request for electricity tariff hikes down from 35% annually over three years to 25% a year, according to Business Report

Kruger said the hikes could cause shaft closures and job losses in the industry, which contributed 18% to gross domestic product (GDP) and provide 1 million jobs.

Preliminary economic modelling by the Chamber, based on surveys of members and industry analysis, showed that deep-level gold mines, where mining currently takes place at an average of 2.7km, would be hard hit by 35% increases for three years. The competitiveness of local metal smelters against peers in China and India would also be affected.

“Electricity intensive mines will see a doubling of the portion of electricity costs in the cash production cost profile in three years. For example, in the gold sector electricity costs comprised a significant 11% of cash production costs in 2008 on average. This would double to more than 20% of costs in three years,” Business Report reported.

The paper quoted Kruger as saying that very large electricity price increases could force the country to become a swing supplier of certain further processed minerals, rather than being a traditional large-scale base load supplier.

Kruger said electricity would make up 24% of cash costs for gold mines by 2012 versus 13.5% last year. Demand side management costs were included in the operating costs section and were expected to rise from R1.5billion in 2010/11 to R4.1billion by 2014/15.

“The chamber recommends that a proper regulatory impact assessment of the cost and benefits of the price increase on investment, growth, exports, employment and transformation be undertaken by the government,” Kruger proposed.