/ 25 January 2008

SA mines shut down as power crisis worsens

South African gold producers and the world’s biggest platinum miner suspended production at all their mines in the country on Friday due to a power crisis, helping send precious metal prices to new highs.

Shares in most of the affected firms dived as the government said the power cuts that have darkened homes and hurt businesses in Africa’s biggest economy were ”a national emergency”.

AngloGold Ashanti, Gold Fields and Harmony said they had stopped all gold mining after they were informed by state-owned power utility Eskom that it could not guarantee power supply to their operations.

The world’s number one platinum producer, Anglo Platinum (AngloPlat), also said it had shut down production at all its South African mines to reduce electricity consumption.

”This is a disaster in terms of production and economic growth,” said Fidelis Madavo, analyst at the Public Investment Corporation fund. ”The government has to find an emergency solution to this problem.”

Spot gold hit a record high of $923,40 an ounce and platinum hit an historic high at $1 697 an ounce after news of the mine closures broke.

The South African government blames the power cuts on the closure of power stations for maintenance, breakdowns at other plants and faster-than-expected economic growth.

Critics say the government has failed to invest in new power generation, arguing the country has too little power capacity to meet demand from its growing economy.

South Africa, the world’s lowest-cost electricity producer, relies on coal for most of its electricity.

State-owned utility Eskom has said it plans to spend R300-billion on new power generation and on improving its infrastructure in the next five years.

‘Survival levels’

Gold Fields said it would lose 7 000 ounces of gold a day while production was halted.

It said Eskom had informed it electricity to key industrial customers, mainly big miners, would be reduced to ”survival levels” or switched off totally for the next two to four weeks.

”This will have a serious effect on the South African operations and will negatively affect our gold production,” Ian Cockerill, CEO of Gold Fields, said.

Harmony said it would lose about 300kg of gold output, or R60-million, a day. AngloGold said it could not estimate its daily losses as it calculated its output on a quarterly basis.

”We are only running power for emergency supplies, such as pumping water out, and have stopped producing at all mines,” Steve Lenahan, a spokesperson for AngloGold, said.

It was unclear how long the power shortage would last.

”It seems to me this is not going to be a quick process [resolution]. They issued us with a warning that we should only do emergency work, so we can’t take a chance sending our people underground,” Harmony CEO Graham Briggs told Reuters.

About 900kg of gold and 590kg of platinum output could be lost a day, an analyst said.

AngloPlat, which accounts for 40% of world supplies of platinum, used for jewellery and cleaning car exhausts, is expected to lose 9 000 refined platinum ounces output a day.

”We are not mining at all of our operations. We have decided not to produce in order to reduce electricity consumption,” spokesperson Trevor Raymond said.

The world’s second-biggest platinum miner, Impala Platinum, said it would lose 3 500 ounces of refined platinum a day after halting operations at its largest mine near Rustenburg, but continued mining at its smaller Marula mine.

Global diversified miner Anglo American said five of its nine coal mines in South Africa’s north-east had halted output, but could not estimate the loss in production.

Shares in AngloGold and Harmony fell as much as 7%, while Gold Fields lost 9%. Angloplat’s stock fell 2%, while rival Implats’S shed 3%. — Reuters