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Message: Xstrata puts R5bn SA investment on hold because of power crisis

Xstrata puts R5bn SA investment on hold because of power crisis

posted on Apr 09, 2010 09:03AM

It seems that Xstrata has lot of problems with Chrome Project these days, maybe they will knock on the Spider Door?

http://www.miningweekly.com/article/xstata-puts-5bn-s-africa-investment-on-hold-because-of-power-crisis-2010-04-07

JOHANNESBURG (miningweekly.com) – Diversified miner Xstrata has put a R5-billion South African investment on hold because of the power crisis .

Xstrata CEO Mick Davis , who spoke at the Wits Business School, says that the investment held back was for the expansion of the company's South African ferrochrome business .

The London Stock Exchange-listed Xstrata, which has a market value of $50-billion and which employs 60 000 people in 20 countries, is the world's largest producer of ferrochrome.

Davis says that, had the investment gone ahead, it would have created 2 000 jobs in construction and 500 permanent new jobs by generating additional foreign revenues of more than R5,4-billion a year from the beneficiation of local chrome ore.

He says, in reply to Mining Weekly Online 's question of whether the R5-billion investment would proceed if Eskom's Medupi power station now under construction began generating power: "I don't know what our decisions will be in relation to the construction of Eskom-generated power stations, because the key issue for me is sustainable power and a realistic price that I can actually predict.

"Until I have predictability on price and sustainability of power, I am not in a position to invest," he says.

On how such a situation of price predictability and power sustainability could be brought about, he adds: "In my view, Eskom alone cannot produce that situation."

He points out that the current costs for Eskom to build a power station is about $3 500/kW, whereas the cost for companies to build their own electricity capacity and to generate their own power is from about $1 500/kW to $2 000/kW.

"The reasons are because companies are taking modular developed units off the shelf, whereas Eskom is creating bespoke power stations and the era of bespoke, large-scale power stations has stopped and is no longer a valid model.

"I am not suggesting that Eskom should disappear at all. Eskom will continue and should continue to be the major provider of electricity in South Africa, but a significant advantage will be achieved for the country in terms of bringing on capacity quicker and cheaper and therefore avoiding some of the rise in the electricity price if own generation was allowed.

"We don't need incentives. We just need a credible price and credible regulations. If that's put in place, it will be done," Davis tells Mining Weekly Online .

He emphasises that security of energy is crucial and that South African does not have it.

"We need urgent regulatory changes to facilitate credible and sustainable electricity generation in the medium term," he says.

Viable solutions include the participation of energy-intensive companies, such as Xstrata, in the construction of own generation.

The participation of the private-sector companies will be aimed at satisfying their own demand, thereby relieving Eskom of the financial and execution burden and risks, while at the same time enabling companies to secure the future of their operations.

As Mining Weekly Online reported in February, diversified miner Anglo American will consider joining up with another energy producer in South Africa if it can assure longer-term reliable power.

Anglo CEO Cynthia Carroll said in reply to the question Mining Weekly Online put after the company presented its 2009 results: "We continue to need more power, particularly out of Anglo Platinum. We expect to require about 1 000 MW more than what we take today."

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