The Power is Still Off in South Africa — the Effects on Mining…

by BWK ~ February 5, 2008

The lights are still not back on in South Africa. This does not bode well for the metals & ores from the mines down there.

The recent news can be found here. But here is how it will effect some specific metal markets….

When South Africa electricity producer Eskom shut off the power, all major South African underground platinum mines closed. Immediately the platinum group metals in shortest supply - platinum and rhodium - experienced record prices as industrial users and speculators panicked over security of supplies.

South Africa controls about 70% of new mine output for these metals. Thus any supply interruption is significant immediately for price terms, and also critical in terms of availability over the medium to long run. One report in Reuters stated that “Before the power crisis, we were forecasting a platinum deficit of 150,000 ounces at the end of 2008. If all platinum mines were shut for one week, this could increase the deficit to in excess of 260,000 ounces.”

With news of the mine closures last week, the platinum price rose $81 an ounce within one day. Platinum is now in the $1770s. The price could spike significantly higher.

And Rhodium, which is a small, but very tight, market, is also at new record levels of around $7100. THis is a significant rise as well. (Platinum started the year at $1530 an ounce and rhodium $6850.) With rhodium there is also a very tight market. The price increase for rhodium has not been as spectacular as for platinum (up around 25 percent in the past 12 months) but there could be further increases ahead should the mining interruptions be prolonged.

Although Eskom has promised to deliver more power to the mines, and the South African government has made power supply a priority, the long-term situation with electricity is problematic. Mines currently have enough power for necessary maintenance and safety work. Eskom is promising to supply 90% of the mines’ normal needs. But the lack of power has cascading, rippling effects throughout any industrial system. And any major problem at any of South Africa’s major power plants will cause rolling brownouts or blackouts and switch the lights out again.

Looking ahead, Eskom promoses that it has a program in place to construct new generating facilities. But these new plants won’t be on line until 2012 or 2013.

Thus the power availability is a serious for the platinum sector in the medium to long term. Virtually all the world’s new platinum mining projects are in South Africa. If power needs to be rationed (and it looks like this will be the case until the next decade) then new mining projects will likely to be at the bottom of the priority list.

Considering South Africa’s huge supply dominance, this means that platinum and rhodium will probably be in continuing short supply until 2013 or later.