Gigaba takes on miner Exxaro

Johannesburg - Diversified resources group Exxaro Resources [JSE:EXX] may be "shifting the blame" by saying high electricity costs and Transnet's poor service led to the closure of its zinc refinery, Minister of Public Enterprises Malusi Gigaba said on Monday.

"I'm not sure if they came to talk to us before deciding to shut their company," Gigaba told an American Chamber of Commerce breakfast.

"They wanted to shut anyway... they're probably trying to save costs and think it's easier and cheaper to import."

Exxaro announced on Friday it might have to retrench workers as it was stopping production of zinc at the Zincor refinery in Springs after failing to find a buyer for the business.

Business Day reported on Monday that the main reasons Exxaro had decided to close the refinery were "high costs and indifferent service" from state-owned utilities Eskom and Transnet.

The decision could cost 640 permanent and 108 contractor jobs.

According to the report, there are no other zinc refineries in South Africa. Companies like steelmaker ArcelorMittal SA [JSE:ACL] would now have to source the product from overseas.

Exxaro's chief financial officer, Wim de Klerk, said in 2006 it paid R50m for electricity out of its entire R600m cost base. It increased to R200m of R700m this year. Exxaro expected it to rise to R350m out of R700m next year, Business Day reported.

Exxaro has been looking at divesting its zinc assets since 2009 because of the zinc market's cyclical nature and low margins, as well as the negative impact of higher electricity prices and the exchange rate.

It owns the Zincor refinery, has a 50% interest in the Rosh Pinah zinc and lead mine, a 26% interest in Black Mountain, which owns the Black Mountain zinc and lead mine and the Gamsberg zinc project, as well as an effective 22% interest in the Chifeng zinc smelter in China.

The company said zinc production was financially unsustainable and Zincor was incurring mounting financial losses.

Turnaround and improvement interventions had "proved fruitless and are unlikely to get Zincor on to a sustainable financial performance level", Exxaro's chief executive officer Sipho Nkosi said on Friday.