The mining industry suffers when there are problems with electricity supply, infrastructure and transport.
Next month’s Mining Indaba will take place as the sector grapples with inadequate services from state-owned enterprises such as Eskom and Transnet.
What President Cyril Ramaphosa once called South Africa’s sunrise industry has had to contend with rolling blackouts and rail infrastructure decay.
The mining industry employs about 460 000 people and adds almost R500 billion to South Africa’s GDP.
Industry experts have long spoken of the potential effects of Eskom’s load-shedding and Transnet’s infrastructure woes on the mining sector, the longevity and success of which are dependent on the optimum functionality of both state-owned entities.
Peter Major, the director of mining at Mergence Corporate Solutions, said: “Infrastructure, electricity and transport are important. So much equipment has to go to the mines. So much material has to come out of the mines. The industry suffers if these are not working.”
Last week, data from Statistics South Africa showed that mining production decreased for the tenth consecutive month in November as a result of load-shedding.
“[Mining] needs regular transport. Ideally, you would want everything to move through a pipeline, a pipeline with no blockages. That’s how smooth they used to have the rail, and the highway was almost as smooth. You want your electricity moving even smoother than a pipeline,” Major said.
Eskom
South Africa has experienced accelerated load-shedding stages recently as Eskom struggles with its power stations. The nation has experienced daily load-shedding since November, with the exception of Christmas Day, according to The Outlier, an independent news publication specialising in data use.
“If it were up to me, I would have walked away from Eskom,” Finance Minister Enoch Godongwana said in an interview with the Mail & Guardian previously. The entity’s chief executive, André de Ruyter, did exactly that when he announced his resignation — effective end March — last month.
Minerals Council South Africa’s Christian Teffo said on eNCA that rolling blackouts have damaged mining infrastructure, which had resulted in the loss of millions of rands and threatened the safety of 2 000 miners.
Major said the “off and on” of load-shedding not only fried electrical circuits, transformers and substations but “the starting and stopping puts a huge load on electric motors because once the motors are running, stopping it affects the barrage, the foundation, the sprockets, the teeth and the shaft”.
He said an unplanned stoppage was even more detrimental because the flurry clogged up the pipes and valves.
“The majority of our platinum production is underground. Can you imagine an underground mine with dicey electricity? Thousands of men’s lives are at stake; you need those ventilation fans going nonstop. You need cooling elements or else the guys will bake to death … you can’t do anything underground without electricity. With electricity, mining is clean, fast and neat.”
Major said the country’s big mines need up to 800 megawatts to ensure the safety of miners.
Platinum deficit
Mining Review Africa has reported that according to the World Platinum Investment Council report in November, platinum will be in a deficit position this year, partly because of load-shedding.
According to Khanyisile Moshoeshoe, the resources sector lead at Rand Merchant Bank, mining giants including Anglo American Platinum, Impala Platinum, Sibanye-Stillwater and Royal Bafokeng Platinum have attributed their production underperformance, in part, to Eskom-related power cuts.
“Over and above needing electricity for their production, it’s also a safety precaution in that you can’t just shut down a mine so they [mining companies] need to plan around load-shedding. Getting a smelter or a processing plant to shut down and restart is not as simple as your house,” she said.
The implications of load-shedding go far beyond a loss of electricity for a number of hours, according to Moshoeshoe.
“It brings challenges from a maintenance perspective because a lot of these plants were not built to be switched on and off. Even though the large mining companies have backup machinery, it is not sufficient because this has gone for a longer period.”
Moshoeshoe said that although load-shedding may seem predictable in that there is a schedule, it is not as predictable as it was in 2007-08.
“It’s an ongoing problem; we all know that Eskom has challenges and unfortunately it is affecting mining companies. The sooner everyone understands, even from different stakeholders, how deep the problem is and that it’s not something that comes and goes [now] which was probably the case in 2007-08.”
Moshoeshoe said another problem was the recently announced electricity tariff.
“It just makes companies rethink how much they invest on capital in the country.”
The National Energy Regulator of South Africa granted Eskom a 18.65% tariff hike to help it cover its debt.
This is despite Godongwana confirming in his medium-term budget policy statement that the government would take on a large portion, between a third and two-thirds, of Eskom’s R392 billion debt.
Transnet
The finance minister’s medium-term budget policy statement also allocated R5.8 billion to Transnet, which has also been a drag on the country’s already hamstrung economy.
“Underground high value mining like platinum, gold or diamond need electricity more than they need transport like the rail and trucks. But the big guys who do manganese, iron ore, chrome, phosphate, titanium, those guys need the infrastructure, they need railroad cars, they need trucks. They’re
getting hit harder and they’ll probably have 10% drops in production by the end of this year, easily,”
Major said.
Transnet has declared force majeure six times over the past 18 months, with reasons including a strike, floods in KwaZulu-Natal and the closure of a major coal line because of an accident. But underlying all these “disasters” is a logistics company that is incapacitated.
“[Load-shedding and Transnet woes are] so disruptive. The company’s costs are fixed and so they have to pay the full price for their workers because it’s not their fault, a full price for rental lease, taxes. It’s horrible and it’s eating up the profit margin. It makes the mining sector very offish. We have a government that’s helping to destroy the infrastructure,” Major said.
Transnet workers downed tools for more than a week in October to demand wage increases. The Mineral Council of South Africa called for a speedy resolution, saying it was losing R815 million in export revenue per day as a result of the strike.
After the industrial action, Minerals Council chairperson Nolitha Fakude wrote a letter to Transnet chairperson Popo Molefe, calling for the resignation of Transnet senior management.
There was also a caution that should Transnet fail to replace the current management, the company could fall into bankruptcy.
“For more than 24 months, we have given the benefit of the doubt to the Transnet management team, who have aptly demonstrated, through several bizarre decisions and statements and in particular the ongoing tragic decline in the
performance of Transnet, that they cannot resolve the crisis and are not capable of turning around the performance. We are insisting on the critical need for urgent change,” the letter stated.
Moshoeshoe drew similarities between Eskom and Transnet in how both state-owned entities hamper mining output and production.
“If you are not able to get your product to the port then you can’t sell it. If your cargo is, for whatever reason, sitting in a place somewhere because there has been theft or the rail is not working then it means you are not shipping; that’s a direct impact on your bottom line, a
direct impact on your costs because that has to sit somewhere and storing minerals is expensive,” Moshoeshoe said.
South Africa is in a power crisis. To guide you through the darkness, the M&G has decided to make all of our Eskom content free to read. Please consider taking out a subscription to help us keep our lights on