Rotational power outages, a failing logistics network and slowing global demand have led to a 10th consecutive month of decline in SA’s mining activity, while the latest announced electricity hike is also set to place more pressure on an already struggling sector.
Stats SA on Tuesday said annual mining production for November contracted 9% after October’s 11% sharp fall.
The number is worse than the median consensus of a Thomson Reuters survey of economists of 6.9%.
Hardest hit were platinum group metals (PGMs), output of which declined 22%, followed by iron ore and diamonds.
On a monthly basis mining production decreased 0.4% in November, compared with a 3% fall in October. The sector is likely to weigh on overall GDP growth during the final quarter of 2022.
According to the World Bank, platinum prices have been affected by the same monetary and macroeconomic factors affecting other metals, notably high interest rates and weak industrial and jewellery demand amid a global economic slowdown.
The World Bank said heightened load-shedding continues to weigh heavily on the energy-intensive mining sector, and it remains a key downside risk to the country’s growth potential.
SA has not experienced one day without scheduled power outages this year, with the number of days at stage 6, four-hourly outages of two to three times per day, already nearing the record set in 2022.
Research shows that Eskom remains a source of baseload electricity supply for the mining industry because solar and wind energy are intermittent.
The mining sector consumes about 14% of Eskom’s electricity. Add smelters and refineries and it consumes about 30% of the utility’s output.
So far, weaker electricity output was behind the drop in fourth-quarter industrial production activity for 2022. The quarter experienced 2.7% more breakdowns of units when compared with the previous quarter, and Eskom’s energy availability factor fell to 56% from an already low 58.2%.
Adding further pressure on the sector, National Energy Regulatory of SA’s (Nersa) has announced a larger-than-expected increase in electricity prices.
Nersa approved an 18.65% increase in electricity tariffs for 2023/2024 and 12.74% for the next financial year.
Minerals Council SA chief economist Henk Langenhoven said the tariff increases mean the mining industry’s electricity costs will increase by R13.5bn, or 33.7%, to R53.5bn by the end of 2024, and that electricity costs will constitute about 12.5% of the sector’s expenses by the end of the same year, from about 9% now.
Langenhoven added that the higher cost of electricity means the share of energy in intermediary inputs will increase from 24% to 38% in gold mining, 22% to 37% in iron ore mining and from 13% to 19% in the platinum group metals sector.
“These increases Nersa granted Eskom fundamentally shift the intermediary cost structures in mining,” Langenhoven said. “For mining, the deepening electricity crisis will be felt at processing, smelting and refining plants, while mines need absolute energy certainty when sending employees underground to ensure they can safely return to the surface.”
Langenhoven said that before the recent stage 6 load-shedding announcement, smelters were already experiencing uncharacteristic trips as they were not designed to operate under these conditions.
“The adverse operating environment of unreliable and expensive electricity, and a crisis in transport logistics for bulk mineral exports erode the mining sector’s global competitiveness and may very well culminate in job losses in mining,” Langenhoven said.
He said over the medium to longer term, uncertainties bode ill for starting new mines. “Confidence in securing reliable and cost-efficient transport and export channels are also critical, and SA’s collapsing electricity availability is increasingly negatively impacting the industrial production sector,” he said.
The Minerals Council said the price of electricity for the mining industry has increased eightfold since 2008, while consumer prices, as measured using the consumer price index, have only doubled.
Update: January 17 2023
This article has been updated throughout.
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