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Eskom may be forced to cut power to mines

18th March 2008

By: Reuters

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Power may have to be cut to South Africa's vital gold and platinum mines if more generators fail because of bad weather, state electricity firm Eskom said on Tuesday, sending local mining shares tumbling.

Global platinum prices rose on the threat of new disruptions in the world's top producer. South Africa is also the second-biggest miner of gold after China.

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"At the moment we are in a very tight situation. If we lose an additional two generators in the course of this morning we could possibly once again be in a force majeure situation," Eskom spokesman Andrew Etzinger told Reuters. "It's really critical at the moment."

The electricity grid supplying Africa's biggest economy came close to collapse in January, forcing gold and platinum mines to shut down for five days. Since then mines have been operating below full power, driving up precious metal prices and raising fears of possible job losses and slowed growth.

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Eskom said it would declare force majeure if it is unable to meet supply contract obligations.

A gold analyst said investors were hoping that January's cuts would not be repeated.

"It's extremely negative. It is not just the loss of production, it is investors' perception of South Africa as a whole, not just the mining industry. Ultimately it raises risk and makes capital more expensive and the companies will suffer low ratings as well as lost revenue as a result of lost production," the analyst said.

Etzinger said nine generators had tripped, and another nine were down for planned maintenance. South Africa has about 160 generators.

South Africa's power crisis follows years of underspending by Eskom on generation capacity.

Eskom has restarted a programme of rolling black-outs, known as load-shedding, and many Johannesburg suburbs -- including the Sandton financial district -- were without power on Tuesday, causing heavy congestion and delays as traffic lights failed.

MINING SHARES TUMBLE

Gold and other mining shares on the Johannesburg bourse tumbled as investors worried that output would suffer.

"People are worrying power might be cut off to the mines and if we haven't got power, that is not good," said one Johannesburg trader.

The JSE Securities Exchange's gold sector fell as much as 2.6 percent.

Spot platinum turned positive following the Eskom comments after falling over 2 percent to a 1-week low. The metal was last quoted at $1,987/1,997 an ounce.

Eskom's Etzinger said three generators were expected to be back in service on Tuesday. "Until such time as those three come into service we're extremely vulnerable."

He said mining companies were aware of the situation but Gold Fields and Anglo American said they had received no notification that power may be cut.

"We're currently still getting the 95 percent that we announced yesterday," Gold Fields spokesman Andrew Davidson said. He said the company would need at least four hours notice to evacuate miners before shutting down elevators and water pumps.

A spokesman for Anglo Platinum said the world's largest producer had received no notice.

The powerful National Union of Mineworkers (NUM) said it would be disappointed it Eskom had to cut power, only days after saying they were moving to restore 95 percent power to mines.

"All of a sudden they are faced with force majeure, and it seems to us they are not sure about how their system operates," said NUM spokesman Lesiba Seshoka.

Etzinger said the problem was compounded by persistent rain in north-eastern Mpumalanga province where coal mines and the utility's coal-fired power stations are concentrated. Wet coal is difficult to handle.

"This is a growing concern as well, both in terms of the coal mines as well as our power station operations. This is adding to the problem," he said.

South Africa generates most of its electricity from coal.

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