"South African gold, platinum and coal mine shutdowns - impacts and assessments" (Source: Mineweb)

The South African power crisis is having a huge impact on the country's economy as well as on global commodity markets, while major miners are suffering big falls in share prices.

Author: James Macharia
Posted: Saturday , 26 Jan 2008

JOHANNESBURG (Reuters) -

Power cuts stopped production on Friday at South Africa's gold and platinum mines, including many of the world's biggest, sending prices for precious metals soaring and denting the rand.

President Thabo Mbeki's government called it a national emergency as the outages hit the mainstay of Africa's biggest economy, the world's No. 2 gold miner and top platinum producer.

"This is a disaster in terms of production and economic growth," said Fidelis Madavo, analyst at the Public Investment Corporation fund. "The government has to find an emergency solution to this problem."

The government, sapped by a power struggle within the ruling African National Congress, has faced growing criticism for failing to end two weeks of blackouts in homes and businesses.

Critics say the outages result from years of underinvestment in power generation for the booming post-apartheid economy despite warnings from state utility Eskom [ESCJ.UL], which told miners on Thursday night it could not guarantee supply.

The power cuts brought precious metal mining to a near standstill and cut ferro-alloy and coal production and exports.

Spot gold hit a record high of $923.40 an ounce and platinum a historic high at $1,697 an ounce.

The rand fell over two percent against the dollar and South Africa's Top-40 share index closed 0.36 percent firmer at 24,192.11 points after dipping to a low of 23,775.63.

Anglo Coal South Africa evacuated all its miners for fear they might be trapped due to the sweeping power outages -- feeding a vicious circle because the country relies on coal for most of its electricity generation.

"It is the view of cabinet that the unprecedented, unplanned power outages must now be treated as a national electricity emergency," Public Enterprises Minister Alec Erwin said.

The country's top-three gold miners, AngloGold Ashanti , Gold Fields , and Harmony said they had stopped all gold mining. They said Eskom told them electricity would be reduced to "survival levels" or switched off totally for the next two-to-four weeks.

ECONOMIC DAMAGE

The damage was not limited to the mining industry. For days homes have been plunged into darkness for up to six hours a day, and traffic has been snarled up as traffic lights failed, leaving South Africans infuriated with Eskom.

Eskom said the gap between power demand and supply capacity reached an unprecedented 4,000 MW (megawatts) on Thursday. It said one of its main problems was a shortage of coal.

Gold Fields said it would lose 7,000 ounces of gold a day, while rival Harmony said it would lose about 300 kg of gold output, or 60 million rand, a day.

Global miner BHP Billiton suspended operations at manganese mines, Anglo American halted coal mines and exports while Xstrata cut ferrochrome and vanadium output.

The world's No. 1 platinum producer, Anglo Platinum (Angloplat) , said it had shut production at all its South African mines to reduce electricity consumption.

Analysts expressed concerns that South Africa's booming economy, which grew near a three-decade high at 5.4 percent in 2006, could struggle to maintain its recent growth rates, which are key to reducing chronic high unemployment and poverty.

"In our view the lack of investment in generating capacity despite a strong economic growth outlook has exposed questionable central management," JP Morgan analysts Steve Shepherd and Allan Cooke said in a research note.

"By the government's own admission, Eskom has been warning of this situation for years."

Government officials assured investors and the public that healthy economic growth could continue with some changes in energy consumption and that the power crisis would not threaten the country's ability to host the 2010 soccer World Cup.

Eskom plans to invest 300 billion rand ($43 billion) in power generation and infrastructure over the next five years.

Shares in AngloGold and Harmony fell as much as 7 percent, while Gold Fields lost 9 percent. Angloplat's stock fell 2 percent, while rival Implats shed 3 percent. (Additional reporting by Muchena Zigomo, Serena Chaudry, and Phumza Macanda; editing by Paul Simao and Matthew Tostevin)