HomeBase MetalsNew power price will cost mines extra R1.6 billion

New power price will cost mines extra R1.6 billion

Power, which will cost
South African mining
another R1.6 billion in
the next year
Johannesburg, South Africa — MININGREVIEW.COM — 19 June 2008 – The 2008/09 electricity price increase announced yesterday by state-owned power utility Eskom means that from 1 July 2008 the South African mining sector’s average tariff will rise by 34.2%. This implies that for the NERSA pricing period from 1 April 2008 to 31 March 2009 the mining industry’s average increase in electricity costs will be about 29%, which means an additional R1.6 billion.

Making this announcement in a media statement here last night, the Chamber of Mines of South Africa pointed out that NERSA had announced a 13.3% price increase from 1 July 2008, in addition to the 14.2% increase granted from 1 April 2008. This equated to an overall average tariff increase of 27.5% in 2008/09.

The Chamber emphasised that this would add to cost pressures that the mining industry was facing. For the large-scale deep level gold and platinum mines, where electricity costs are about 10% of cash production costs, this electricity price increase would add between 2% and 2.5% to cash costs.

The statement added that the Chamber recognised that electricity prices had to rise in real terms, but had focused on ensuring that the price increases were smoothed in over an appropriate period of time to avoid the economic dislocation effects of large front-loaded price increases.

The power tariff increase is expected to exert further pressure on inflation Bloomberg reports that inflation has exceeded the central bank’s 3% to 6% target range for more than a year, and that the 27.5 % tariff increase for this year will probably push up the inflation rate by between 1.3 and 1.4 percentage points.

Inflation, which climbed to an annual 10.4% in April, will peak at 12% in the third quarter and stay outside the target range until 2010, according to the central bank.