SA Chamber of Mines president, Mike Teke questioned mining’s investment attraction during his recent presidential review – noting a number of areas which need improvement and government focus.
Although a decrease in commodity prices is a global challenge, as are increased operating costs, Teke added that they are putting further strain on South Africa’s mining sector. “We, as a country, have to create a stable, competitive and predictable policy, legislative and operating environment which encourages investment.”
Electricity price hikes
Significant upward pressure on electricity prices is very damaging to the viability of gold and platinum mines. The NERSA-approved 12% increase in the electricity price in 2015 will add an additional R2 billion in costs on to the platinum and gold sectors.
The recently applied for additional 13% point request by Eskom will double this negative impact. Rapid increases in these costs are already affecting the viability of many gold and platinum mines, with 31% of gold mines and nearly 40% of platinum mines loss-making at current prices. The affected sectors have cut back on capex (which affects longer term production) and may require further restructuring to remain viable.
It is important for government to recognise that it alone cannot solve South Africa’s electricity constraints. Private sector power needs to be contracted urgently. The mining industry is already using up to 20% less than its normal demand as a contribution to the alleviation of electricity shortages.
“We urge our government and Parliament to deal with the MPRDA Amendment Bill on an expeditious basis,” Teke said.
“Trying to force mining companies to sell minerals in the domestic market at developmental prices will damage the already strained mining sector, and probably do little to help the downstream sectors.”
“We need to deal with and get certainty on the Mining Charter so that we can continue with the transformation programme. We need to deal with setting new Charter obligations urgently, noting the need for greater alignment with the DTI codes.”
South African should not proceed with introducing a carbon tax and carbon budget, when South Africa’s existing carbon trajectory is even lower than the government’s “peak, plateau and decline” commitment made in Copenhagen in 2009, and when electricity prices have increased at a rate that already discourages demand Teke highlights.
“Applying both a carbon tax and a carbon budget will mean that South Africa is the only developing country to do so and this will prejudice the survival and competitiveness of the carbon intensive mining industry. It is our view that the carbon tax should not be introduced in 2016, and that rather the focus should be on carbon budgeting and other instruments that do not prejudice the competitiveness of the mining sector.”