South African mines look for power shortages to end

Posted in Africa | 29-Jan-08 | Author: James Macharia| Source: International Herald Tribune

An employee of Tanaka Kikinzoku Jewerly in Tokyo on Tuesday as gold hit a record high for the third straight day.

JOHANNESBURG: South African mining companies said Monday that they hoped to resume production later this week, but there was no sign of an end to power shortages that have put jobs and economic growth at risk.

The power shortage became a national emergency Friday, halting diamond, gold, platinum and other mines in the biggest African economy and helping send prices of precious metals to record highs while weakening the South African rand.

"This is happening at a bad time because gold and platinum prices are at record highs," said Nick Goodwin, an analyst at a T-Sec. "Just when mining companies were beginning to smile, they get knocked down. What's the use of having such high prices if you have no product to sell?"

Gold reached a record high Tuesday, just short of $930 an ounce. Platinum also hit an all-time high, of $1,735 an ounce, while silver commanded prices not seen for 27 years, reaching $16.76 in New York on Monday.

'There may be a chance for platinum to visit $2,000 because of a supply and demand imbalance," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

The South African government of President Thabo Mbeki faces criticism for years of underinvestment in power generation. Critics say his government is distracted by a leadership battle in the governing African National Congress after Mbeki lost the post of party president last month to rival Jacob Zuma.

"Lights are going out on Mbeki and his regime," wrote Donwald Pressly, a columnist with Business Report, a South African newspaper.

JP Morgan analysts said they expected losses in revenue to be about 2.6 billion rand, or $361.6 million, at the top-four gold and the top-five platinum producers if the crisis lasts a week.

Meetings this week between mining firms, government officials and the state utility Eskom would determine when and how mines could start production, expected to be in a phased process so as not to overload the power grid.

Mines expect to be asked to cut their power usage by about 10 percent, and Eskom said the crisis could last four weeks.

Worried about output losses, Cynthia Carroll, the London-based chief executive of Anglo American, flew to South Africa for crisis talks with government officials.

Anglo said its South African coal mines roared back to life Monday after a series of weekend meetings with Eskom which relies on coal-fired power generation for more than 90 percent of its electricity.

AngloGold Ashanti, the world's third-biggest gold producer, said it anticipated more power supply later this week which should enable a phased return to normal mining operations.

"We are starting to emerge from a crisis that had the potential to undermine the viability of the South African gold industry," Mark Cutifani, AngloGold's chief executive, said.

For weeks, homes, shopping malls and businesses have been dark for hours every day while failed traffic lights have caused accidents, but power cuts have now eased.

The government says the crisis does not threaten South Africa's plans to host the 2010 soccer World Cup.

Analysts fear the booming economy, for which the government has set a growth target of 6 percent to fight poverty, could slow down and say the government ignored warnings as long ago as 10 years from experts to build power plants.

"Serious electric capacity shortfalls are sure to slow economic growth additionally this year and perhaps for several years," said Kristin Lindow, Moody's vice-president and analyst for South Africa.

"This will pose challenges for policy makers already struggling with the impact of inflation," Lindow said, "and the transition from the Mbeki to the Zuma era."

Unions feared job losses if the crisis persisted.

"The Eskom power cuts are already a national embarrassment," said the Congress of South African Trade Unions federation, which is in a governing alliance with the African National Congress.

"We are seriously concerned that the crisis could deepen, as there is now a potential threat to millions of jobs as a result of the continuing power cuts."

The Authorities have guaranteed enough electricity for essential maintenance, pumping out water, ventilation, and refrigeration.

Most mining firms had their power supplies restored to about 70 percent and expected more power from Wednesday.

The rand fell more than one percent to 7.2250 to the dollar before recovering somewhat as investors shunned the currency partly on fears the power crunch could cut economic growth.

Mining shares on the Johannesburg bourse tumbled, with Anglo, which has interests in platinum, coal and gold, down 6 percent.