Northam Platinum CEO Paul Dunne has raised concerns about electricity tariffs after double-digit power price hikes in the year ended June 2024 as profits plunged on falling metal prices
The group's sustainability could be negatively impacted by reliance on Eskom and the national grid, it said in its 2024 annual integrated report released this week.
Between 2007 and 2022 Eskom tariffs, approved by energy regulator Nersa, went up by 653% while inflation rose by 129%. Nersa is due to consider Eskom’s latest proposal for a 36% tariff increase in the next financial year, in addition to a 12.7% increase this year.
Nhlanhla Gumede, head of electricity regulation at Nersa, told Business Times last week that a mistaken interpretation of the law by the regulator had led to above-inflation electricity tariff increases and an affordability crisis for consumers.
Although Eskom did not implement load-shedding in winter this year — compared to 153 days of load-shedding in the 2023 winter season — Northam maintains that supply security concerns persist.
“Updates by Eskom on the integrity of the electrical grid infrastructure mean that this situation is likely to continue into the medium term. Together with ongoing above-inflation tariff hikes, this situation could compromise Northam’s production capability, as well as negatively impact overall cost inflation and consequent profitability.
We are very concerned about future cost increases for power for the country, not just for mining
— CEO Paul Dunne
“The largest increase in costs for the group for the financial year has been the cost of electricity and these increases will likely continue in light of Eskom’s financial struggles.”
Dunne told journalists at a round-table on Friday after the results were released that the group had pursued alternative power sources not just for decarbonisation but for commercial reasons.
“We are very concerned about future cost increases for power for the country, not just for mining”.
He said Northam was pushing to reduce its energy costs by securing power from alternative sources, including a planned 80MW solar facility to be constructed at Zondereinde mine in the second quarter of the new year.
“The 80MW photovoltaic (PV) plant at Zondereinde gives us a very attractive unit cost per kilowatt hour versus the Eskom tariff. That is why we are pushing hard to get that completed so that we can reduce our power bill. It is clearly a good business case over and above the decarbonisation impact,” he said.
Northam's target is to reduce its total greenhouse gas emissions by 27% by 2030.
To reduce reliance on Eskom, it installed three diesel generators that produced 1.25MW of power at Booysendal South mine during the previous year, with a total capacity of 12.7MW, and an additional 4.8MW of diesel generators were installed at Eland mine, bringing the self-generation capacity for Eland up to 8.4MW.
Northam, which sold its 34.5% stake in Royal Bafokeng Platinum to Impala Platinum last year, reported a 29% decline in profit to R1.7bn from R2.5bn a year earlier.
Falling platinum prices also resulted in a 22% decline in revenue to R30bn from R39bn a year earlier, with cost increases driven by rising energy prices and labour bills that account for 40% of costs.
CFO Alet Coetzee said labour costs were higher at Zondereinde because it is a conventional mine, with a large workforce.
“Around 40% of the costs are associated with labour, which will roughly increase by between 6% to 8%. There is a lot of electricity we use for refining as well as our refrigeration, which is also a large input. We have put out conservative numbers; we would not want to come back to the market and change the assumptions. We put out what we believe is reasonable; let us see what inflation does and especially the tariff increases for Eskom,” Coetzee said.
Dunne said that to cut labour costs, Northam has a moratorium on new hires for non-critical posts.
“When we say non-critical, we mean if it is not safety or line management in production then we have a moratorium. We are not in a restructuring exercise, that is not necessary at Northam because we are still growing and we are still hiring at both Booysendal and Eland mines. Our workforce is growing, we are different to some of the older operations where you have a shrinkage of the labour force.”
However, it has put the brakes on expansion plans, stalled long-planned surface infrastructure at Zondereinde and suspended developments at Booysendal South.
Dunne said these are challenging times for the platinum group metal (PGM) industry.
“The combination of geopolitical issues, global inflation and the threat of a global recession, together with the penetration of battery electricity vehicles in China, has resulted in material declines in PGM prices.
“This difficult market condition has put a strain on the PGM industry across the value chain. We expect that this challenging environment will lead to structural changes in the industry and that this will be necessary to restore the supply [and] demand balance for PGMs.”
The group said it had options if commodity prices stay low. “These include raising additional funding or refinancing debt, reducing or suspending dividend payments, as well as reducing expansionary capital expenditure in order to preserve liquidity”.
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.