SA mining resumes, but production uncertain

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South Africa’s gold and platinum mines started restoring production on Tuesday after Eskom, the state-owned power utility, agreed to allot the mines 90 per cent of their normal supply of electricity.

Miners like AngloGold Ashanti and Anglo Platinum will begin ramping up production gradually in their underground mines, five days after Eskom cut their power supply in half in response to a nationwide energy crisis.

A return to full production, however, might not be reached until next week.

Eskom’s decision, reached at a meeting with mining companies in Johannesburg, marks a win for South African big business at the expense of the country’s households and smaller enterprises.

Eskom is facing unprecedented strains to its power generation capacity, and the allotment of electricity in the country has become a zero-sum game that has infuriated the businesses and individuals who have been deprived of it since early January.

“In order to ensure that industry gets the power they need, Eskom will now have to start looking at shedding power from other places, like households and shopping malls,” said a representative for Gold Fields, the country’s second-largest gold miner, after Tuesday’s meeting.

Mining houses are now determining how they can maximise production with 10 per cent less power than they enjoyed previously.

“Now that we know what the authority can provide, we are looking at how best to work within that constraint,” said Trevor Raymond, a spokesman for Anglo Platinum, the world’s largest platinum miner. “But we don’t have a view yet on how much we can produce or how soon.”

Friday’s power cut hit the gold and platinum industry especially hard because of the depth of their mines. Without at least 90 per cent of normal electricity supply, it is unsafe to send miners to depths of up to 4km.

On Tuesday night mining companies were trying to determine where in their operations they can cut power to achieve Eskom’s mandatory 10 per cent power reduction.

Eskom has warned that South Africa cannot expect an adequate power supply until 2013, when the first of three new plants comes on stream. Analysts have said the power shortages could deter foreign investment.

Under the terms of Tuesday’s deal, mining companies can on Wednesday expect to receive 80 per cent of their previous power allotment. By Thursday that should increase to 90 per cent, enough to send miners safely below ground again.

AngloGold Ashanti was one of several groups that did not expect a return to full production until late next week. “Things will improve incrementally,” said Steven Lenahan of AngloGold, adding that the company expected to achieve 65 per cent of previous production by the end of the week.

Companies said it was too early to predict losses due to the drop in production. In a note on Friday, JPMorgan estimated the loss of one week of production for Anglo Platinum at R832m ($115m).

Coal and aluminium companies also said on Tuesday they were starting to return to normal production.

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