Platinum miners not worried by power cuts

2012-01-13 15:31

Johannesburg - South African platinum producers said on Friday they were confident there would be sufficient electricity to power their mines this month, despite utility Eskom noting a higher risk of outages on its already volatile system.

The spot platinum price jumped to four-week highs this week after Eskom said supply of electricity would be extremely tight this month as the power firm took down more plants to conduct overdue maintenance.

Eskom said the risk of blackouts was higher, but there were none planned for now, and miners in a country home to four-fifths of the world’s platinum reserves said they were not overly concerned.

“We don’t foresee any problems at this point in time,” said Alice Lourens, spokesperson for Impala Platinum, the second-largest producer of the metal used in autocatalysts.

Four years ago South Africa’s grid nearly collapsed, forcing mines and smelters to shut for days and costing Africa’s biggest economy billions of dollars in lost output. Eskom has since invested heavily to build new plants and plug the shortfall.

Supply will remain vulnerable until the first units of the new plants come online in 2013, but analysts and industry say Eskom is now better prepared to manage a volatile system.

Insufficient stockpiles of coal, used to power 85% of Eskom’s plants, were one of the main problems in 2008, but the utility has since kept a healthy 42 days’ supply.

Razor-thin margin

Eskom is also urging consumers to conserve power while it operates on a razor-thin margin, especially as it steps up maintenance to improve the performance of its power stations.

On Monday the difference between peak demand and available capacity was a tiny 460 MW, mainly due to maintenance and unplanned outages, although the situation has since improved.

“The likelihood of load reduction requests is low. The high alert from Eskom on Monday was due to three generating units tripping within a short space of time. This is uncharacteristic and does not happen every day,” Anglo Platinum [JSE:AMS] the biggest producer, said in response to questions.

Since the 2008 crisis, miners and other industries have been asked to cut their demand voluntarily by up to 10% and there is discussion about making the scheme mandatory.

That also means miners may not be the first to be asked to cut demand in case of a crisis, although mining and other industry make up 40% of South Africa’s total demand for power.

“The risk of Eskom cutting electricity supply to mines should fade and so should any (price) rally that found support in that risk,” said Standard Bank analyst Walter de Wet.

Still, miners said they were on alert and were prepared to act, if necessary, and would seek to minimise the impact.

Anglo Platinum said, if needed, it would first cut usage at its smelters and concentrators, suggesting that mining would not be severely affected as long as the power cuts were short-lived.

Aquarius Platinum [JSE:AQP] would be less exposed than its peers as it does not have a smelter and sells platinum group metal concentrate to be refined by its bigger rivals.