Wages‚ electricity costs seen challenging miners: Baxter

By- Paul Vecchiatto

This year will be a challenging year for the mining sector as it faces massive cost cutting pressures in the face of rising wages and electricity prices‚ says Chamber of Mines senior executive for strategy and economics‚ Roger Baxter.

Speaking to Business Day at the conclusion of the four-day Investing in African Mining indaba on Thursday‚ Baxter said: “The industry will have to cut its cloth from the fabric it has.”

He said while the Chamber had done no modeling‚ it understood clearly that cost factors such as wages made up 50% of the costs for gold mining companies.

On electricity‚ he said SA had cheap electricity prices until 2008 as they were about eight US cents per kilowatt hour and if Eskom got its way they would rise to 16 US cents‚ placing the country in the top quartile of the most expensive countries for electricity.

“The practical reality is that SA is at a tipping point as far as electricity prices are concerned‚” he said.

Eskom is proposing in its current round of tariff increase applications that large industrial and mining users would face a 21% increase in electricity prices for the next five years.

Baxter said mining companies would try to operate within the constraints they were facing‚ but warned that if electricity prices and wages increased too quickly and too soon‚ then restructuring would have to take place.

“They can’t just keep operating shafts if they are absorbing cash and capital at a fast rate‚” he said.