The government must expedite the licensing of large solar projects planned by large industrial companies so that they can reduce their exposure to job-destroying tariff hikes and give Eskom space to deal with its operational issues, says Gold Fields CEO Nick Holland.
An example of the damage from Eskom’s steep tariff hikes is the looming loss of more than 90,000 jobs at the end of the three-year tariff structure, which will increase electricity costs to 30% more than they were in 2018, Minerals Council SA chief economist Henk Langenhoven has said.
The 90,000 jobs are a quarter of those the SA mining industry now has and nearly all of the 112,000 in the gold industry. By 2021, just two gold mines will remain in business because of the relentless cost pressures in the industry, he said.
Eskom increased tariffs for large industrial users such as mining companies by 523% since 2006 as the state utility struggled to keep its fleet of ageing power plants generating electricity, to fund the construction of new mega power plants that have run hugely over budget, and to pay interest on R440bn of debt.
In a wide-ranging interview last week, Holland also spoke of the minimal effect on Gold Fields’ interest payments should there be a sovereign credit downgrade in SA, as the government struggles to come up with answers to grow the economy and tackle the enormous debt burdens at Eskom and other state utilities.
One of the most pressing cost pressures in the gold industry is that of electricity, which for Gold Fields is forecast to double to R1bn at its South Deep mine in the next five years, Holland said.
"If we continue with these kinds of increases we’ll double our electricity bill in five years and that’s not a sustainable solution for us and I’m sure it’s certainly not sustainable for anyone else," Holland said.
Gold Fields, Anglo American Platinum, Sibanye-Stillwater and Orion Minerals are among many industrial users of electricity seeking permits to install large solar arrays on or near their mines in order for third parties to supply cheaper electricity that will not increase in price like that from Eskom.
"We have all these projects ready to go, which will alleviate pressure on Eskom and allow other new business prospects to get going, which is what the economy needs. Unfortunately, there’s a big delay in getting these solar projects approved and the government needs to figure out how it’s going to fast- track them," Holland said.
"That will take the pressure off Eskom to reset its base properly, decommission old units that really do need to be decommissioned, and change the whole supply side. We just can’t afford ... double-digit increases each year. It’s going to really hurt the economy," he said.
Gold Fields has an independent power producer lined up and studies have been completed into a 40MW solar array near its South Deep mine close to Carletonville. The mine uses up to 80MW.
However, its application with the National Energy Regulator of SA (Nersa) is just one in a long queue, Holland said, adding he would now give the matter his personal attention so that work can start early in 2020.
"It’s an imperative for us," Holland said.
The Minerals Council SA has estimated solar projects with about 2,000MW of generating capacity are waiting for approval. While in the short term, taking this amount of demand away from Eskom would alleviate the immediate pressure on the grid, in the longer term it could dent Eskom’s revenue. However, mining companies point out that solar power would only be a relatively small part of their electricity resources and they would still need grid power at night and on cloudy days.
SA now represents just 8% of Gold Fields’ annual production of more than 2-million ounces, but it is home to its largest source of unmined gold. Since it it has invested more than R32bn in buying and developing it, this means the company is unlikely to follow AngloGold Ashanti by putting its last remaining SA mine up for sale.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.