18th February 2008

At the end of January, the South African mining industry (including platinum, gold and coal) briefly shut down almost all of its operations due to unpredictable power availability. Although South Africa has 40,000MW of installed generating capacity, roughly a quarter of this was out of action at the time due to faults, planned maintenance and a shortage of the coal used in most of these power stations. With the electricity supply unable to meet demand, the country was subject to short notice black-outs which would have made mining unsafe, forcing the shutdown.

At the start of February, the mining industry obtained an agreement with Eskom, the power utility, that it would receive sufficient notice of power cuts and 90 per cent of power requirements. This allowed mining operations, and some processing, to restart relatively quickly. However, the mines do expect this shortfall in power supply to have an impact on refined pgm output.

To put this in perspective, Anglo Platinum recently revealed that its forecast for 2008 platinum production would be 2.4 million ounces, 150,000 oz below where it would have been without any power supply problems. Of this, 30,000 oz has already been lost and up to 120,000 oz could be lost over the remainder of the year (with some potential for improvement on this). Impala have commented that it will lose about 30,000 oz over the full year, having lost 10,000 oz in January, as well as suffering a 20,000 oz impact on recoveries for the year as a whole [due to running at lower mass pulls]. Other miners are likely to be similarly affected although Northam has stated that it will lose no production if running consistently at 90% power.

Uncertainty does remain, however, over the longer term expansion plans for mining on the Bushveld complex. Eskom, the electricity utility is demothballing plants and moving to restore capacity. However, significant expansion in generating capacity is at least four to five years away. It seems likely that major new projects in the mining industry in general will be constrained to some extent over this period by power supply. However, as the short term problems are addressed, the overall position should become clearer.