MINES COULD TAKE ESKOM OFF THEIR GRID
While t he i mpact of Eskom’s load-shedding i s s ure t o damage S o ut h Af r ic a’s economic growth, the feedback from the country’s mining community over the last fortnight is that it’s dealing with the crisis like any of the labour or regulatory headwinds it routinely faces.
This is not to underplay the impact of above-inf lation tariff increases, or unreliable supply. In fact, so moved is Neal Froneman, CEO of Sibanye Gold, by the power crisis that he wants his company to become self-sufficient in sourcing its power supply, and even generate revenue off its self-sufficiency by wheeling excess supply to the SA grid.
Last week, Sibanye Gold announced t hat it would build a R3bn solarpowered facility near its Driefontein mine on t he West Rand to supply 150MW with the help of development funding institutions, as yet unspecified.
The problems with the initiative, however, are twofold. Firstly, 150MW is only 30% of its total 500MW power needs, and secondly, there doesn’t seem to be a unified response by the industry whether it is working together to deal with the threat of silicosis claims, and whether it cooperates when l abour disputes arise of a certain order. Said Froneman in an interview with
Finweek : “I believe this could be a gold industry-wide initiative owing to the importance of having scale.” Asked at the company’s year-end f igures for his view on broad cooperation, he was less forthcoming.
Srinivasan Venkatakrishnan, CEO of AngloGold Ashanti, was similarly vague: “It is an industry issue to f ind a resolution i n consultation with Government.” He added, however, that building power generation sets beyond what’s needed to transport employees in the even of a power emergency was not a priority.”
“It didn’t make sense to build a power station. Grid power is more efficient and while we continue to look at green energy, such as solar power, this would only provide standby power
for us,” he said.
Power costs ar e becoming a n increasingly meaningful f i xed cost to gold mining, doubling from 10% several years ago to 20% today for both Sibanye Gold and AngloGold Ashanti.
Impala Platinum CEO Terence Goodlace sa i d t he company was considering providing itself with power through fuel-cell technology, but in the end Eskom-related power problems will have a bearing on the company. “We’ve got a detailed plan on how to reduce power and what we turn off.
“But once we get to 20% [stage 3 load-shedding] we are going to have to start closing shafts down,” he said. “We’d start by looking at the lowest contributing shaft – since we know what does what – if the situation gets worse,” he said.
The newsflow from finance minister Nhlanhla Nene’s Budget wouldn’t have exactly been heart-warming to mining companies either.
Nene announced an increase in the electricit y lev y to 5.5c per kilowatt hour (c/ kWh) from 3.5c/ kWh with 2c/ kWh to be removed a f ter t he carbon ta x, which was delayed t wo years in the previous budget, has been implemented.
According to Eugene King, an analyst for Goldman Sachs, the higher levy as well as the increase in the annual tariff increase, some 4% over the level previously announced by the National Energy Regulator of South Africa (Nersa) to 12.69% from 2016, could lead to a 50% plus increase in electricity costs for SA miners where power is about 15% to 20% of total bills.
“Overall, negative newsf low for South Africa-based miners,” said King. “Electricity supply has been irregular which has led to lost production. The new 50% proposed hike in electricity bills would negatively impact earnings and reduce their competitiveness visà-vis global miners i n t he current environment where we are witnessing f lattening of the cost curve,” he said.
The bearing of power cost increases depends on what mining stocks one is thinking about, however. About 25% of AngloGold Ashanti’s asset base is exposed to SA, but only 1% for Gold Fields, while Harmony Gold and Sibanye Gold have 90% and 100% exposure respectively.
From a platinum perspective, Implats i s t he l east exposed (50%), while Lonmin is 100% exposed and Anglo American Platinum (Amplats) has some 88% exposure, according to King.
Elsewhere, however, gold miners simply roll with the punches.
Niel Pretorius, CEO of DRDGold, a gold retreatment company, said it had agreed with Eskom to lower usage at its Ergo operation on the East Rand by 10% in the event of phase 1 and phase 2 load-shedding, in which electricity supply is cut 1 000MW and 2 000MW nationally, on condition that it receives t wo hours’ notice, which gives it enough time to thrift power between operating units.
Amplats has similar f lexibility in its set-up to tackle Eskom’s load-shedding schedule. Owing to the fact that its processing facilities are not operating at full tilt, it is able to cut back on power supply to these units allowing its mining operations to continue.
For the time being, Sibanye Gold is on its own as it seeks to build its own power source. As such, it is highly risky, especially as Froneman hinted in his interview with Finweek that Sibanye may one day even seek to own the coal that would supply a power station.
A report by Deloitte, however, suggests that mining companies seeking to enter the energy market on their own run considerable risks since building power stations is a complex task well outside the core competence of a miner.
“Where mining companies choose to participate actively in independent power producers [ IPPs], t hey may choose to partner with other coal producers,” said Chris de Vries, an associate director of Venmyn Deloitte, a mining advisory firm.
In this model, mining companies can share the risk of operating an IPP or choose to build a small modular generation unit to reduce the risk of a larger power plant, said De Vries.
LAST WEEK, SIBANYE GOLD ANNOUNCED THAT
R3BNIT WOULD BUILD A SOLAR-POWERED FACILITY NEAR ITS DRIEFONTEIN MINE ON THE WEST RAND