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Picture: SUPPLIED
Picture: SUPPLIED

High energy costs are damaging SA’s mining industry, which accounts for about 8% of GDP, according to a study by Boston Consulting Group (BCG).

The latest mining outlook report by the consulting firm noted that SA was grappling with a 4GW-5GW energy supply shortfall as a result of Eskom’s failure to invest in new capacity over an extended period.

“Energy is also becoming expensive: SA’s energy costs are the fourth highest in a comparison of similar mining jurisdictions and are expected to continue increasing as electricity prices become more reflective of their true costs,” the report reads.

“Locally, 80%-90% of grid-connected energy generation is from coal or diesel, with a relatively small proportion of renewable and other energy sources in the mix. Increasingly, customers of mining companies are demanding that suppliers use cleaner energy supplies. SA’s transmission capacity is increasingly becoming the bottleneck for the addition of new generation capacity.

“Mining companies will need to consider whether the existing grid is suitable for their energy needs, especially if they are aiming to utilise multiple sources of power or distribute the power to several mines.”

In a bid to address its transmission challenges, Eskom’s National Transmission Company of SA (NTCSA) officially began trading this month after unbundling from the power utility. Eskom has also initiated a process to raise billions of rand in funding for construction of 14,000km of new transmission lines over the next 10 years.

Priscillah Mabelane, chair of the NTCSA, told Business Day last week that the new company was still determining the financial implications. The plan is to connect about 37GW of renewable energy to the grid to facilitate network expansion. The main focus will be to bring the substation online and build new transmission lines.

BCG said in its report that SA’s mining sector, which directly employs about half-a-million people, faced the triple challenge of unreliable energy supply, rising costs and significant greenhouse gas emissions in recent years. It advised mining firms to invest in cost-effective, reliable green energy.

“Given SA’s attractive solar and wind resources, as well as its existing unreliable carbon-intensive generation assets, shifting to cleaner sources of energy can simultaneously increase the reliability and cost-efficiency of energy access for mining companies,” it said.

“However, the solution is not as simple as having every mine build its own renewable plant, because a large proportion of variable energy supply cannot address power needs during times of lower energy production, for example at night. Storage and peaking solutions as well as a portfolio of assets with complementary production profiles are critical.”

BCG said that as the hunt for mining assets around the world ramps up, African states should seek “government to government” conversations with countries such as the UK, US and Saudi Arabia as well as the EU to identify common interests.

“Traditionally, funding exploration required equity raises, while funding for new mines was sourced from a combination of debt, equity and project finance.

“For critical minerals, different funding models are being developed by offtakes — both private and governmental agencies — eager to secure supply. One of those models is streaming, where a loan is repaid not in cash but in delivery of a specified annual volume of the minerals produced at a predetermined price. The lender may use those minerals or sell them.

“Another financial arrangement is one where a financier will extend a loan based on the security of cash flows from an offtake agreement, or where an offtaker will extend finance in return for preferential offtake.”

It said countries such as the UK and Saudi Arabia showed strong interest in securing supply. Last year, Saudi Arabia announced it would buy $15bn of stakes in mining projects in Namibia, Guinea and the Democratic Republic of Congo to obtain access to the critical minerals needed for its goal of producing 500,000 electric vehicles a year by 2030.

Rand Merchant Bank (RMB) said earlier this year a trade war was brewing between Middle East countries and the West over access to lithium, copper and cobalt.

Abu Dhabi’s International Resources Holding (IRH) recently outbid Sibanye-Stillwater for a controlling 51% stake in Zambian copper mine Mopani in a deal worth $1.1bn.

IRH is a subsidiary of the United Arab Emirates’ most valuable listed company, International Holdings Company (IHC), which has a market value of about $240bn. IHC is chaired by a senior member of the ruling family, Sheikh Tahnoon bin Zayed Al-Nahyan.

khumalok@businesslive.co.za

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