Mining firm South32 says it has clinched a long-term energy supply agreement between its Hillside Aluminium smelter and Eskom to provide power to the site until 2031.
"The agreement secures the smelter's energy supply until 2031, under a tariff that is South African rand-based with a rate of escalation linked to the South Africa Producer Price Index," the company said on Friday.
The new agreement replaces some contracts that were US dollar-based and linked to the aluminium price on the London Metals Exchange. CEO Graham Kerr said the agreement would provide power cost certainty for a further 10 years, with Eskom receiving a price aligned to long-term tariff policy.
Eskom will have the flexibility to interrupt supply to the smelter which will in turn help it manage supply and help it reduce the risk of load shedding, Kerr said.
Electricity supply remains a major challenge for energy-intense industries operating in the country and a growing number of mining companies have begun developing renewable energy projects in a bid to minimise their exposure to the national power grid.
In June, government moved to increase the threshold for the exemption of licences for self-generation by companies to 100 MW.
The Minerals Council of South Africa, which represents mining companies in the country, had previously indicated that it stands ready to bring to fruition at least 1.6 GW embedded generation projects that are being planned by mining companies. These are largely renewable and private-sector funded .
On Friday, South32 said Hillside remains competitively positioned on the global smelter cost curve, with operating unit costs for the full 2021 financial year reflecting the higher power charges from the new agreement incurred since 1 August 2020.