Load shedding and the impact of the ongoing power crisis on South Africa's mining and metal extracting sectors featured high on the agenda during the 2015 Africa Mining Indaba. Industry leaders, including periphery players such as precious metal refiners, are worried and are hoping for a sustainable solution.
As South Africans were subjected to another week of load shedding and insecure energy supply, the 20th Investing in Africa Mining Indaba opened its doors to over 7000 business leaders, investors, mining experts, and politicians from all corners of the planet.
Whilst the event, known as the world's largest mining and investment gathering, was dominated by distinct optimism, particularly in relation to the ongoing recovery of the global economy, there was apprehension too says Bernard Stern, CEO and co-founder of Metal Concentrators (MetCon), South Africa's largest independent precious metal refinery. He adds that various speakers voiced their worries with regards to Africa's overall energy shortages and the impact of this on mining activities.
Figures by the World Bank for instance showed that 1 to 3 Gigawatts (GW) of electricity is installed in Africa each year. Stern says that this is a fraction of the 6-7GW of newly installed power capacity the continent needs per annum in order to achieve universal access to electricity by the year 2030.
“Investors are worried, and a big concern among them has to do with power,” said Credit Suisse mining analyst Justin Froneman during the Mining Indaba's first day. “There is a dire need to grow mining production across Africa, but this requires more energy. The question is where this power base comes from.”
The situation in South Africa particularly, was a hot discussion topic during the event. Last week Eskom confessed how 37% of its installed generating capacity of 42.000 MW was offline last Thursday. This resulted in rolling blackouts across the country. While things have been better this week thus far, the power shortage remains a problem, experts warned, especially for the mining sector.
“Over the past years South Africa's natural resource output has dropped. Gold was no exception,” says Stern. “According to recent statistics by the Chamber of Mines, our country's gold production fell by over 50% over the last eight years, from 226.105kg of fine gold in 2007 to 146.473kg in 2013.”
Whilst there are many reasons to which this decline can be attributed, energy insecurity is undoubtedly one of the most important culprits. “In January 2008 alone, the month which heralded the start of our power crisis, gold production in South Africa fell by 16.5%,” Stern said. “South Africa's gold output drop for the entire first quarter of 2008 declined by 17% compared to the same period the year before. This can be directly attributed to our energy problems.”
Whilst load shedding slowly subsided and stayed away for a while, it reared its ugly head last month. “It is important to realise that the energy crisis has never gone away, and that it won't go away anytime soon,” Stern said.
He added that although the energy crisis has hit gold producers and other mining companies in particular, periphery players are equally concerned. “We need power, whether it is to produce gold, refine it or to turn it into for instance jewellery, Kruger Rands or Minted gold bars,” he said. “ During the past few months we have had at least ten incidents of load shedding. Our timeous investment into a diesel generator has rescued our productivity, albeit at a substantial cost. It is crucial for Eskom and the Department of Energy to find a sustainable solution to ensure the future of gold mining and the subsequent beneficiation of our precious metals. South Africa's natural resource industry as well as upstream and downstream operations are massive drivers of the economy and important job creators too. If mining has a hard time, everyone else has a hard time too.”
The nuclear deal with Russia might be controversial, but is good news in terms of energy security, Stern says, explaining that it will, in the long run provide South Africa with a stable supply of energy. “The problem is that it will take many years before these new power plants will start pumping energy into the energy grid,” he stressed. “We need something in the interim to keep our country's economy going.”
