Major South African deep-level miners want to stick to mining and avoid generating their own electricity – except when it comes to emergency power.

However, emerging junior miners are taking self-generation in their stride, examples being South Africa’s Wesizwe Platinum and Australia’s Braemore Resources, which is also JSE-listed.

Braemore goes so far as to accuse South African miners of being “spoilt” and points to the Australian tradition of miners generating their own electricity.

South African Chamber of Mines assistant adviser for technoeconomics of small-scale mining and mining in Southern Africa Dick Kruger says it is not economically feasible for mining companies to generate their own electricity.

He speaks of mines building their own coal-fired power plants: “It is a more sensible option to have emergency back-up generators that can go on line with the flick of a switch.”

Harmony Gold CEO Graham Briggs holds a similar view, adding that the cheapest option for Harmony is to continue using electricity provided by Eskom. “It makes more business sense, and our main concern is rather to focus on safety in times of power outages.”

Outgoing Gold Fields COO Terence Goodlace looks at the current power crisis holistically, but also agrees, adding that Gold Fields is “accelerating what we need to be doing to save energy, rather than cogenerating power”.

Wesizwe, however, is going to cogenerate its own power on a large scale at its new 230 000-t/m platinum mine, which has an expected life of 25 years. This seems not to be the company’s first choice, but rather an imperative, because Eskom can only “guarantee” minimal power for its new project.

Wesizwe CEO Mike Solomon seems unfazed by these developments: “If Eskom does not deliver on its roll-out plan, Wesizwe needs to have contingencies as we cannot afford project delays or shortfalls in production. It is, therefore, worth our while to spend a little bit more on providing for supplementary and back-up power, and our risk assessment exercise on the issue indicates it will not impact materially on the economics of our project.

“The bottom line is that while the Eskom situation is undoubtedly a serious matter, we have done our homework, understand clearly the impact it has on our project, and we have made adequate provision for supplementary power in our budget. We see it in the same context as any other risk management procedure.”

Regulatory Standpoint
Even though the policy set out by the National Energy Regulator of South Africa to encourage companies to cogenerate has been “welcomed” by the mining industry, this is because it allows companies to know “where they stand”, according to Kruger, who adds that “cogener- ation should only happen where economic-ally feasible”.

But, owing to the views of some major mining industry leaders, it will not be the case with their companies.

Briggs says self-generation is not a good idea: “Certain companies are good at specific things for a reason, and one should not get confused about what [one’s] company’s core focus is, and building power stations is not our core competence.

“Yes, we have engineers that can develop such competences, but it would detract from what we do. Electricity supply development on the side detract from our actual function.”

Harmony Gold consulting engineer for its northern operations Leon le Roux agrees: “We are miners, and our expertise does not lie in generating power. There are opportunities to facilitate other companies to come onto the market, but not necessarily ourselves.”

Kruger adds, “Eskom is the sole arbiter of energy, and it has been forced into that position, and there should be some other adjudicating authority other than Eskom. It puts Eskom in an awkward position to be the referee and the customer.”

Wesizwe’s Action Plan
Wesizwe’s plan to ensure that its project is guaranteed consistent electricity supply until Eskom is out of the woods extends to 2018.

It will require 10 MW of power for its shaft construction and equipping programme, which starts next month and continues to 2012. Eskom is committed to constructing infrastructure to support those 10 MW by the third quarter of next year, but will guarantee only 2 MW, requiring Wesizwe to make up the balance of 8 MW with light diesel generators at ten times the cost – R2,20/kWh, rather than Eskom’s 22c/kWh.

The cost of using light diesel generators as a supplementary power source over the course of the capital construction programme will be R168-million, for a R5,6-billion project. “Therefore, in the greater scheme of the economics of the project, it’s accounted for,” Solomon adds.

But what will happen after 2012, when the project approaches its ramp-up phase into steady-state pro- duction in 2018?

Until 2012, two things will happen: Eskom has undertaken to deliver the required 10 MW of power for the capital construction phase by the end of 2010, and the company will then switch its light diesel generators over to become a standby power source.

Wesizwe’s peak requirement at steady-state production will be 65 MW, but this will only be needed by 2016. By 2013, it will need only 13 MW of power, which will increase up to 2018. However, by 2010, Eskom should have installed the infrastructure for the mine’s full quota of power on the project, which means that the company should have adequate power to support it by 2013.

By 2012, Wesizwe will have set in place heavy fuel generators on its project, which is projected to cost five times more than Eskom power to supply up to 45 MW of capacity for the project (supplementing the 10 MW of light fuel generation).

“By 2017, we hope the Medupi power station will have been built to continue the company’s electricity supply on the national grid,” he says.

He notes that the company’s risk analysis estimates that it will be at a power shortage risk for about from 2% to 4% of the time. “We are taking a worst-case scenario of 10% in terms of our overall power usage and, therefore, we have made provision to have 10% supple- mentary power. Our supplementary power costs in terms of the bankable feasibility study will be 6,5% of our total costs.

“The recent 27% electricity cost increase pushes our power costs up to 27c/kWh and the heavy fuel standby generation will cost R1,23kWh; but what must be understood is that we will not be using this amount of generation all the time (only 10% of the time), which means that our power costs average at 37c/kWh (a 30% increase).

“The net exposure is 2,3%, which falls within our other volatilities, which means it is not a project-threatening factor,” he says.

Gold Fields’ Action Plan
Gold Fields, on the other hand, is looking at reducing its power consumption and to have stand-by emergency power, rather than generating its own power.

“Power saving has been a critical part of our strategy for many years. We have the potential to further reduce consumption, and have embarked on many processes to save power and become more energy efficient,” says Goodlace.

On average, the Gold Fields South African operations use 17,9% of the energy company’s supplies for compressors, 22,75% for pumping, 14,89% for ventilation, 10,85% for plants, 9,77% for general purposes, 8,38% for mining, 7,99% for hoisting and 7,47% for refrigeration.

Goodlace says that it would be too expensive to be self-sufficient by generating capacity on its mines. “Diesel prices are skyrocketing, but if one has sufficient natural gas, such as methane, a mine could be self-sufficient.”

This is exactly what Gold Fields intends doing at its Beatrix mine, near Welkom, where it has methane release as a result of mining. Initial tests on existing boreholes for methane started last year.

“We are examining the use of methane to generate power at Beatrix. It is free. We have looked at a whole set of options over and above emergency generation,” he adds.

Goodlace continues, “We cannot be independent from Eskom and will never be.”

He says that Gold Fields’ top priority is to provide for emergency power, with plans to construct emergency stand-by power at all its mines by the end of the year. But, he notes, “Cogeneration projects will be examined on a case-by-case basis and, in the next two to three years, we are looking at additional cogeneration units.

“We will implement diesel-fired stand-by emergency power with a capacity of 50 MW. If we had gas pipelines in close proximity, we would use them. There are some opportunities that we are exploring, but it is still some way off,” he notes.

The company is aiming at saving 25% of compressed air power, 15% on water pumping costs, 8% on ventilation costs and 10% on gold plant power. The company’s baseline target for power saving is 5% this year, which will be increased by another 5% next year.

Gold Fields has already started looking at cogeneration in other countries.

“Ghana went through a stage where it was unable to generate sufficient hydropower for the country. Gold Fields, with three other mining companies, built a mining reserve power plant to produce 80 MW of diesel-fired power, which we feed into the national grid to assist us, should there be shortages in the future,” he adds.

Harmony’s Action Plan
Briggs strongly believes that building a power plant is not the route to follow.

Harmony Gold has devised new strategies for the optimising operations to produce at 90% of the previous electricity supply to ensure that it delivers in line with its strategic plans.

“If we were to establish a coal-fired power plant, capital costs would be enormous,” he says.

Le Roux explains: “We have done our homework, and, depending on the size of the plant, it would cost R200-million to build a 50-MW plant, which will take about four years to complete, which does not even include the continuation costs.

“The current Eskom programmes that are in place, in terms of the independent participation in power generation, are not sufficiently high in terms of rebates to make them economically viable compared with current and projected power costs.”

Briggs says that Harmony uses about 470 MW of power. “So we would need massive amounts of electricity if we were to be self-sufficient; therefore, we have no intention of doing so.”

Briggs sees the safety of his staff as his main issue and area of focus.

“We need electricity for mine safety. Each operation will have a secure emergency supply, for example, for the Cooke operation to supply Doornkop with power in case of an emergency, and vice versa,” he explains.

Harmony will be spending R141-million over the next two years to double its current emergency power facilities and to increase its capacity of 45 MW to 95 MW of emergency standby power. It will also provide an increased amount of interconnectivity between operations.

Harmony will be using liquid fuel generators, which will provide the company with a future opportunity to change to gas if it becomes available.

Harmony has 11 different operations, some with multiple shafts hoisting 50 00 t/m to 170 000 t/m.

Briggs says that outages do not affect one specific operation and, generally, the company has not been affected by outages that much since the company cut its usage in January. However, he states that the need to reduce its power usage is hampering the company’s growth.

“Our biggest single challenge is that we would like to use more power. We have projects that we have built over a number of years, such as Doornkop and Phakisa, and we have spent a lot of money on building up production and the projects need more power, which is an issue that is not fully addressed with Eskom because of the debate about new projects.

“The problem is that these projects are not new projects to us, as they already have points of delivery and agreements with Eskom. We need more power, and when we started these projects, it wasn’t envisaged that power would be a constraint in the future,” he remarks.

Harmony predicts that the Doornkop project will need to increase from its current usage of 15 MW to 50 MW, and Phakisa’s usage will need to increase from 10 MW to 40 MW.

“In total, we need about 90 MW more power,” says Le Roux.

“If we could get another 100 MW, we could use it productively to generate more gold. This is a big challenge for our projects, and to build our own power station to support them means a big strategic decision on what the gold price would be in the future,” Briggs adds.

He says that Harmony needs “105% of electricity usage” to increase production, but that it “should be understood that it is for production purposes and not wastage”.

“We have continuous communication with Eskom on the strategy going forward, but the question remains whether our projects will get electricity in the future. We need to know, because we need to make a call on our plan of action, because we are spending money on these projects. If Eskom is going to turn us down, then we are wasting shareholders’ money.

“This is a national problem, and I am sure we are not the only company in need of more electricity. If we do not get more electricity, it will have bad consequences for our company. If all our mines have to cut production, it means less kilograms of gold sold outside the country. There are dire consequences if we don’t export. We have an export product, employ a lot of people, and national interest is high when it comes to mines,” he states.

Bringing it On
Cogeneration, however, seems to have taken off in the ferrochrome industry.

JSE-listed ferrochrome producer Merafe Resources will cogenerate up to 40 MW of power by the end of 2009.

“We should be up and running by the end of next year,” Merafe Chrome GM Jurg Zaayman stated at the announcement.

The company is set to use off-gases to generate the power at its enclosed furnaces.

Merafe’s ferrochrome venture is jointly operated with Xstrata, and currently operates at 90% capacity, which the company says reduces its ferrochrome output by one- tenth. Before the power crisis, the group used 1 000 MW of power.

“South Africa’s electricity shortage would, however, mean that no new expansion in the country’s ferrochrome industry would come on line in the next two to three years,” says Merafe CEO Steve Phiri.

Another ferrochrome producer, International Ferro Metals (IFM), will commission a R200-million cogeneration plant by July next year. The plant is expected to generate 140 000 MWh/y.

The plant will be embedded in IFM’s existing ferrochrome smelting facility between Brits and Rustenburg. The cogeneration plant’s capacity at 17 MW will equate to 12% of the company’s electricity usage.

BHP Billiton, however, will not be building a cogeneration plant, but will be bringing in gensets from Australia for its Hotazel manganese mines.

The gensets are expected to supply adequate emergency stand-by power.

The company also plans an expansion of its Meyerton cogeneration facility.

“We have to create a sense of emergency to make people understand that the power crisis is a big problem, and big industry is bearing the cost of it. Everybody, no matter whether it is a mining company, or the rest of South Africa’s corporate economy and residential consumers . . . everyone needs to play the game,” Goodlace concludes.