Platinum and gold mines in South Africa stopped operations as the country was hit by record levels of rolling blackouts that are crippling key parts of the economy, threatening another recession.
Producers including Sibanye Gold Ltd., the world’s biggest platinum miner, recalled workers from underground and stopped milling ore after state-owned power utility Eskom Holdings SOC Ltd. announced late Monday it would cut 6,000 megawatts from the grid to prevent a complete collapse.
Boosting Blackouts
South Africa's Eskom cut the most power yet from the national grid
The rolling blackouts, which continued for a sixth straight day Tuesday, have a far-reaching and debilitating effect on the economy. In the first quarter, power cuts contributed to the biggest contraction in a decade. South Africa is the world’s main source of platinum-group metals, used primarily in autocatalysts.
Eskom downgraded the cuts to Stage 4, or 4,000 megawatts, overnight and was still on that level Tuesday morning. The utility has experienced a raft of breakdowns as it struggles to maintain aging plants and grapples with faults at two giant new power stations, Medupi and Kusile. The utility has also blamed heavy rains that have soaked coal used as fuel.
HERE’S WHAT MINING COMPANIES ARE SAYING SO FAR:
- No. 2 producer Impala Platinum Holdings Ltd. didn’t start the 4 a.m. underground shift Tuesday and the company has stopped milling ore and shut its smelter.
- Sibanye may resume afternoon and evening shifts if Eskom stays at Stage 4, but it still has restrictions on milling of ore and other processing facilities.
- Harmony Gold Mining Co. Ltd. said it will resume operations at nine underground mines when Eskom has given assurances that power supply will be more reliable.
- Petra Diamonds Ltd. stopped mining at its South African operations.
While mining directly makes up only about 8% of gross domestic product, a shutdown in the industry will also hit manufacturing, which accounts for double that. The work stoppage will also weigh on South African exports, half of which is made up by mining products. That could again widen the deficit on the current account, which is one of the factors that keeps the rand and the economy vulnerable to global events.
“It does mean that the economy is heading for a recession,” Iraj Abedian, chief executive officer of Pan-African Investments and Research Services, said by phone from Johannesburg. “There’s no way that hot on the heels of the previous quarter’s negative growth in GDP with this type of humongous and material disruption to the continuity of business that the economy can register positive growth.”
Weak economic growth could lead to a further deterioration in public finances and heighten the risk of South Africa losing its last investment-grade credit rating with Moody’s Investors Service. The company cut the outlook of the nation’s Baa3 assessments to negative last month.
For miners, the industry-wide shutdown comes as South African producers seek to capitalize on rallies in prices for palladium, rhodium and gold, which have boosted earnings.
Source: Bloomberg