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Eskom hikes to increase Harmony costs by 15 percent
October 30, 2009
Harmony Gold Mining, South Africa's third-largest gold producer, on Friday cautioned that electricity utility Eskom's proposed tariff hikes could increase its costs by 15 percent a year.
Speaking during a presentation of the company's September quarter results, Harmony CEO Graham Briggs said electricity costs would then represent 25 percent of total costs in three years.
Electricity currently represents 13 percent of total costs.
Eskom has proposed hiking electricity prices by 45 percent in each of the next three years.
Briggs said increases of this magnitude would certainly fuel the cost of steel and other commodities while pushing inflation by up to 2 percent higher.
He added that as a result, wages would increase not by 6 percent a year but by 8 percent to 10 percent a year.
Harmony's prediction comes just a day after larger rival Gold Fields warned that mining costs could rise by more than 17 percent and industry could be forced to halt projects because of the increase in electricity prices.
Gold Fields CEO Nick Holland said that the hikes would have a "devastating" effect on the industry and the economy.
He explained that the higher tariffs would increase the cost of mining gold by 17 percent before taking into account the knock-on effects of wages and steel prices.
Last week DRDGold warned that may be forced to close its Blyvooruitzicht operations if the tariff increases are granted.
"Eskom's proposed increases will add R70 000 to the underground operating costs of producing a kilogram of gold at Blyvoor by the end of that three-year period," said DRDGold's chief executive Niel Pretorius.
"The underground mine will not cope with that because of the difficulties in saving that amount of cost elsewhere on the operation. We would have to shut it down," Pretorius said.
At 10.37am shares in Harmony were 0.48 percent or 39 cents lower at R80.41.
The stock has gained 41 cents this month to date. - I-Net Bridge
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