Mines get Eskom breather

2008-03-18 14:46

Johannesburg - The threat of a power cut to South Africa's vital gold and platinum mines receded on Tuesday when the state electricity firm Eskom repaired two generators.

Global platinum prices had earlier risen because of the possibility of new cuts in the world's top producer. South Africa is also the second-biggest miner of gold after China.

After warning in the morning that power could be cut to the mines, Eskom said two generators that had been down were back in operation and two more would be restored by Tuesday evening.

"The risk is reduced a bit with the stations coming back on, but we are still load shedding and the risk remains high until Thursday," Eskom spokeswoman Nto Rikhotso said.

The electricity grid supplying Africa's biggest economy came close to collapse in January, forcing gold and platinum mines to shut down for five days. Since then mines have been operating below full power, driving up precious metal prices and raising fears of possible job losses and slowed growth.

A gold analyst said investors were hoping that January's cuts would not be repeated.

"It's extremely negative. It is not just the loss of production, it is investors' perception of South Africa as a whole, not just the mining industry. Ultimately it raises risk and makes capital more expensive and the companies will suffer low ratings as well as lost revenue as a result of lost production," the analyst said.

Eskom said in the morning that nine generators had tripped, and another nine were down for planned maintenance. South Africa has about 160 generators.

South Africa's power crisis follows years of underspending by Eskom on generation capacity.

Eskom has restarted a programme of rolling black-outs, known as load-shedding, and many Johannesburg suburbs - including the Sandton financial district - were without power on Tuesday, causing heavy congestion and delays as traffic lights failed.

Mining shares tumble

Gold and other mining shares on the Johannesburg bourse tumbled as investors worried that output would suffer.

"People are worrying power might be cut off to the mines and if we haven't got power, that is not good," said one Johannesburg trader.

The JSE Securities Exchange's gold sector fell as much as 2.6%.

Spot platinum turned positive following the Eskom comments after falling over 2% to a 1-week low. The metal was last quoted at $2 007/2 017 an ounce.

The powerful National Union of Mineworkers (Num) said it would be disappointed it Eskom had to cut power, only days after the utility had said it was moving to restore 95 percent power to mines.

"All of a sudden they are faced with force majeure, and it seems to us they are not sure about how their system operates," said Num spokesperson Lesiba Seshoka.

Eskom spokesperson Andrew Etzinger said the power problem was compounded by persistent rain in north-eastern Mpumalanga province where coal mines and the utility's coal-fired power stations are concentrated. Wet coal is difficult to handle.

"This is a growing concern as well, both in terms of the coal mines as well as our power station operations. This is adding to the problem," he said.

Anglo American said three open cast coal mines supplying Eskom had closed because of rain. South Africa generates most of its electricity from coal.

- Reuters