Gold Fields to lose up to R1bn in power crisis (Source: Miningmx)

Allan Seccombe
Posted: Thu, 31 Jan 2008

[miningmx.com] -- SOUTH African gold output at Gold Fields will be reduced by up to 164,250 oz worth R1bn at current prices because of the power crisis in that country amongst other issues, CEO Ian Cockerill said on Thursday.

A 10% reduction in power usage by mines demanded by South African power utility Eskom will reduce gold production and lead to shaft closures and restructuring, Gold Fields said in December quarter results, which showed a three percent decline in output, tightly contained costs and a massive leap in net earnings.

Eskom on 25 January declared force majeure on its power supply, causing mines across the country to shut their operations. Power has been steadily increased to the mines since then and is currently between 80% and 90% of normal usage.

lead to shaft closures and restructuring
"At the South African operations, subject to the availability of power, which at the time of writing is 80%, production is likely to be about 20 to 25% lower than the December quarter," Cockerill said in the results.

"This is due to various factors, the slow start up after the Christmas break, the week-long stoppage due to the power shortage in January, and production losses across all the South African operations due to continued power shortages." An analyst pointed out that holiday breaks during the March quarter generally resulted in a reduction of between eight and 10% reduction in output anyway. "It puts that figure from Gold Fields into perspective and I think this is the company preparing for a round of retrenchments," the analyst said.

Production at the South African operations decreased to 657,000 oz from 689,000 oz in the September period. Attributable international output increased to 303,000 oz from 297,000 oz.

Eskom and the mining industry have agreed that the mines, amongst the largest users of power, will cut their demand by 10%.

“The 10% reduction by Eskom will impact on gold production and may regrettably lead to shaft closures and restructuring,” Cockerill said. “Current power shortages in South Africa will impact production in the March quarter and into the foreseeable future.”

“The ongoing power shortages in South Africa will require a combination of aggressive energy saving and energy efficiency projects to achieve a 10 per cent reduction in electricity use, and possible participation in Eskom’s Emergency Demand. “

Gold Fields’ net earnings shot up to R1.94bn in the quarter against the previous quarter’s R429m and R767m in the same period a year earlier.

Gold output was down three percent to 960,000 oz, mainly because of reduced output from the South African operations offsetting a net recovery in the offshore mines.

“During the December quarter we saw a welcome recovery at our international operations. Regrettably the South African operations, in particular Driefontein, were adversely affected by a number of safety related work stoppages,” Cockerill said.

Total cash costs were up just three percent in the quarter.

Cockerill said of the outlook for the international operations in the March quarter: "Production is forecast to increase marginally and costs will be slightly higher due to increases in power and diesel input costs."