Eskom is the biggest risk to Anglo American’s South African business in the short term, CEO Mark Cutifani said.
Anglo remains one of SA’s leading mining companies with domestic assets in platinum group metals, diamonds, coal, iron ore and manganese despite selling all its coal mines that supply Eskom.
Eskom has asked the National Energy Regulator of SA for permission for tariff hikes of 17.1%, 15.4% and 15.5% over the next three years, which is more than the 15% a year it originally requested.
In a sign of how the power supplier’s financial crisis has spiralled out of control, CFO Calib Cassim said on Monday that the company was projecting a R20bn loss for the year to March, almost double the R11bn it was forecasting about three months ago.
Potential price hikes and the unreliability of electricity provision from Eskom, has been identified by credit agencies and industry leaders as the biggest risk to the economy.
Most of the utility’s R419bn debt is guaranteed by the state, and the Reserve Bank has consistently cited above-inflation increases in administered prices as being among the major risks to interest-rate policy.
“In the short term, it is a key risk,” Cutifani said in an interview at the Mining Indaba in Cape Town.
“In the long term, it has the potential to be a competitive advantage, but that means we all have to work and help Eskom get back to its potential.”
The Minerals Council SA has warned that implementing the tariff increases requested would wipe out 150,000 jobs, or one third of all the people working in mining. The proposed increases would destroy the gold industry, severely damage the platinum sector and wipe out SA’s smelting and refining industries. Anglo was confident the team assembled by President Cyril Ramaphosa and public enterprises minister Pravin Gordhan would deliver the best possible solutions to the problems at Eskom, Cutifani said.
While the mining company was conscious of the damage it could inflict on Eskom by removing its assets from the grid, it would be using alternative power sources for any new power it needed “to improve our competitive position”.
“The reality is, if Eskom continues to hike rates as it does, then we have to look for alternatives to grid power because we can’t afford it,” Cutifani said.
“We are working on renewables. We have got to be participants in an integrated strategy right up to our earlobes,” he said, talking of using renewable and alternative power sources such as hydrogen fuel cells that use platinum.
“We’ve got to get Eskom’s system operating at its capacity and there has to be a clear pathway over the next three to five years for it to deliver on its capacity.
“It’s the only way to get its costs under control,” he said.
“Then we need a vision beyond that five-year period on how cost-competitive Eskom can be. I know the task team is working on it,” he said, referring to the team appointed by Ramaphosa in mid-December.
Turning to corruption in SA, which slipped down the global corruption rankings in a Transparency International 2018 survey, Cutifani said he regarded as positive the news flow out of the country as details of rampant fraud and corruption were laid bare in the Zondo state capture and other inquiries.
“It’s a good sign of a healthy democracy, understanding there’ve been problems and bringing them out into the open.
“SA will not be judged by what it did in the past, but what it does in the future to make sure this never happens again,” he said.
Mineral resources minister Gwede Mantashe said: “If a country has a reputation of corruption, investment doesn’t come, but we are dealing with it.”