Share

Resilience against Eskom’s power cuts tested

A report by RMB Morgan Stanley in the final weeks of 2019 suggested that, contrary to popular thought, Eskom’s rolling blackouts since about 2008 have had a limited impact on South Africa’s mineral production.

This, it said, was down to the fact that SA’s mining sector had showed some extraordinary resilience and has been able to adapt.

In the lower stages of load-shedding, open-cast mining can continue, which is the basis on which a fair portion of the country’s iron ore, platinum group metal (PGM) and coal mine production is performed. 

Stage six load-shedding, however, means not even open-cast mines can escape the restriction.

There’s also the impact of repeated electricity interruptions on the integrity of smelters and refineries that make finished metal out of PGM concentrate. 

Increased load-shedding also means higher maintenance on smelters – as permanent damage can often materialise – resulting in increased downtime.

However, severe blackouts as in the closing weeks of 2019, in which 6 000MW was rationed across the national grid, would be harder to manage, said RMB Morgan Stanley’s SA analysts, Brian Morgan, Christopher Nicholson and Jared Hoover.

Eskom announced stage six load-shedding in early December in which up to 6 000MW was cut from the system: The country had never seen this extent of power rationing and suggested to both industry and citizenry alike that Eskom’s problems were worsening.

“The duration and intensity of the blackouts worries us,” said the RMB Morgan Stanley analysts. 

Unfortunately, 2020 hasn’t started particularly well. 

On 4 January, before the majority of SA’s population returned to work from the summer holidays, Eskom announced a resumption of stage two load-shedding owing to the breakdown of the conveyor supplying coal to Medupi power station, near Lephalale in Limpopo – the same malfunction that helped put SA into stage six load-shedding last year.

Worryingly, Medupi is one of SA’s new power stations: Its final unit was commissioned in 2019, but there are serious doubts that the station will ever hit its 4 800MW design capacity, owing to defects in its boiler architecture that cannot be repaired, according to RMB Morgan Stanley. 

And while Medupi continues to be unreliable, the expected decommissioning of the Grootvlei and Komati power stations, which provide a total of 2 100MW of power to the national grid, in 2021 and 2022 respectively, is likely to add further pressure to the system.

There are, of course, long-term consequences to ponder for the SA mining sector. 

Ultimately, unreliable power supply impacts on the investment lure of the sector. 

New investment is already a paucity, but re-investment would also be threatened, according to the bank. 

“Over the longer term, the Eskom risk provides a disincentive for producers to invest in replacement supply in SA,” said RMB Morgan Stanley. 

It also results in a structural cost inflation push equal to 10% to 15% of SA mining cash costs. 

Finally, unreliable power supply provides an incentive for fabricators and original equipment manufacturers to thrift or substitute away from the metals where possible. 

There may be a material uptick in the prices of metals as a result of supply interruption where SA is a dominant supplier – such as PGMs for instance – but the impact on the country’s mining sector is to add another negative in an increasingly bleak-looking investment scenario. 

This article originally appeared in the 16 January edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.92
+0.1%
Rand - Pound
23.88
+0.1%
Rand - Euro
20.39
+0.2%
Rand - Aus dollar
12.32
+0.1%
Rand - Yen
0.13
+0.0%
Platinum
908.05
+1.2%
Palladium
1,014.94
+1.3%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders