While State-owned Eskom’s request for a 60% nominal increase in power tariffs would have a major cost impact on the mining sector, South Africa’s extractive industries were “very adept at evolving to deal with these types of exogenous shocks”, outgoing Gold Fields CEO Ian Cockerill, who has been one of the harshest industry critics about the rationing of power to the country’s mines, argues.

Speaking in a teleconference, following his decision to step down, Cokerill said that Eskom’s request could be an example of “the chickens coming home to roost”, after decades of “incredibly cheap” power in the country.

Cockerill, who current CFO Nick Holland will replace as CEO in May, added that the company’s power supply situation had stabilised, albeit at a lower supply level.

“In South Africa, 11% to 12% of our costs are related to power, so if you have a 60% increase in a fairly significant cost component, obviously its going to have a major impact,” he stated in a teleconference.

“The kneejerk reaction is that the sky will fall. But this industry, and this company, has always shown itself as being very adept at evolving itself or transforming itself and dealing with these types of exogenous shocks,” Cockerill said.

“And I think that, given time, certainly [COO-designate] Terence Goodlace, and the local crews here will be coming up with some very innovative ideas that won’t stop cost increases translating through to Gold Fields. But hopefully will go a long way towards ameliorating the impact on costs.”

UNDERVALUED POWER

Cockerill went on to highlight that South Africa had enjoyed cheap electricity for years.

"I think most people would agree that for a long time we’ve had incredibly cheap and probably undervalued power in South Africa, so perhaps this is a little bit of the chickens coming home to roost," he said. "Clearly we are going to be moving into an environment over the next decade of rising energy costs, not just here but across the world."

Countries that he listed as alos having energy constraints were Chile, China, and even parts of the US.

SENSE OF STABILITY

Cockerill said that the Gold Fields' power situation had stabilised since Eskom had granted it an extra 5% use, pushing its total allocation to 95% of its previous consumption.

"Certainly after the initial issues of the shutting down of our operations, the situation has returned to a greater sense of stability," he commented.

"We’re effectively now just under 95% of our previous consumption levels on our operations locally, and have been fairly stable for the last couple of weeks."

"So, I think that it would be fair to say that the situation has been stabilised, albeit at a lower supply level," said Cockerill.

"And we’re learning to cope with that."

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