South Africa: Power threat to Gold Fields production

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A reduced power supply to South African mines could lead to sharp production losses and thousands of job cuts at Gold Fields, Africa’s second largest gold producer, the company said on Monday.

By William MacNamara in Johannesburg

Gold production was likely to fall between 15 per cent and 20 per cent a year at Gold Fields’ South African mines as long as they were operating on 90 per cent of their normal power supply, the company confirmed, noting that power rationing was expected to last five more years. An estimated 6,900 employees, or 13 per cent of the workforce, could lose their jobs in restructuring, and some shafts could be closed down.

The company’s statements were the fullest and most drastic signs yet of the industrial costs of South Africa’s electricity shortage.

Since late January, the country’s mines – among the world’s biggest producers of platinum, gold, and diamonds – have operated at 10 per cent less power to mitigate a national power crisis.

The inability of Eskom , the power utility, to supply mines their normal power allotment “has caused a significant crisis in the South African mining industry”, said Terence Goodlace, Gold Fields’ head of South African operations.

“It is paradoxical that we have to consider downscaling in the current record-high gold price environment,” he added. Supply worries have helped push gold and platinum to record highs in the past month.

The Chamber of Mines , South Africa’s industry group, said Gold Fields’ problems were representative of the sector.

“No mining company would seriously suggest they will be able to function on90 per cent power without the consequences that Gold Fields announced today – both production and job losses,” it said.

The sector’s 10 per cent power reduction is “voluntary”, the product of negotiations between Eskom and mining companies in January. It is not contractually binding. One of the industry’s biggest fears is that Eskom will cut mines’ power supplies further.

Gold Fields’ statement raised the spectre of both industry-wide job cuts and political battles with South Africa’s mining union.

“The National Union of Mineworkers will take to the streets if companies carry out their retrenchment efforts,” the union said.

South Africa’s gold mines have been the hardest hit of any subsector by the power crisis.

Most power at the country’s deep gold mines is reserved for ventilation and pumping, and no miners can descend to the depths unless these functions are reliable.

Gold Fields, echoing other gold companies, said on Monday it would spend R200m ($26m) on additional power supplies “to safeguard employees in the case of a total blackout”.

Diesel generators, said Mr Goodlace, would create power at about 10 times the cost of Eskom’s power.

Shares in Gold Fields fell 5.9 per cent to R10,875 in Johannesburg on Monday.


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