Natural Resources of South Africa Stalled by Energy Crisis

The South African mining industry has been consistently churning out some of the world’s foremost natural resources, including precious metals such as gold and platinum. Yet in the …

The South African mining industry has been consistently churning out some of the world’s foremost natural resources, including precious metals such as gold and platinum. Yet in the midst of an energy crisis, the nation may be forced to rethink how to power one of its most important industries.

The world leader in platinum production, South Africa is suffering from an energy shortage which is threatening its mining industry with massive layoffs, economic stagnation and skyrocketing world prices.

While a member of one of the most economically depressed continents in the world, South Africa has flourished economically with a strong mining industry and technological advancements, both of which have led the nation to outgrow its electricity-generating capacity despite warnings from state electricity supplier Eskom.

“The government has acknowledged that it failed to heed a 1998 Eskom warning that new power generation capacity would be needed,” according to the Times Online (U.K.).

When Eskom was unable to provide a constant source of electricity, all three of South Africa’s largest mining companies—Gold Fields, Harmony and AngloGold Ashanti—were forced to halt production for five days in late January.

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“In what Alec Erwin, the Public Enterprises Minister, termed a ‘national emergency,’ the world’s biggest platinum miner, Anglo Platinum, said that it, too, had ceased production at all its local mines because of a lack of reliable electricity supplies,” according to the Times Online (U.K.).

Unfortunately the energy-related outlook doesn’t improve in the near future. All of South Africa’s mines are receiving just 90 percent of their normal power, a situation expected to last for the next four years.

Gold Fields, the world’s fourth largest gold miner, is expecting that the downturn will force a cut of almost 6,900 jobs—nearly 13 percent of their workforce, according to IOL.com, a South African news outlet.

What doesn’t seem to add up, and may send investors into frenzied selling, are layoffs in the midst of rising metal prices, which were reported at record highs at the end of February.

“Gold rose on [Feb. 25] as high as $951.90, just below a recent historic high on investor buying, before paring gains,” according to IOL.com.

Because of high interest rates, both economic growth and foreign investment have taken a big hit, according to the International Herald Tribune.

South Africa released an announcement March 7 stating that the mines will get a power boost of 260 megawatts in the coming weeks to help alleviate problems associated with the energy crisis, according to Bloomberg.com. News of the announcement sent platinum prices plunging.

“The increase will allow miners to use 95 percent of their normal requirement, up from a 90 percent limit imposed in January after a near-system collapse led to the closure of most mines in the country for five days. That sent platinum and gold prices to records,” according to Bloomberg.com

The 260 megawatt energy boost should be helpful in curbing the amount of jobs cut; South Africa already has the highest unemployment rate of 64 countries monitored by Bloomberg.

The natural resources of South Africa will be susceptible to continued energy shortages until Eskom powers up its next major plant in 2012.

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