Eskom's problems are a re-occurring nightmare for South African mining companies struggling to cope with crippling power disruptions. Now one mining junior, Wesizwe (JSE:WEZ) the platinum developer, has lost patience with the power utility and set out to rid itself of the self-perpetuating cycle of power failure that South Africa is caught in.
To this end South African firm Wesizwe Platinum has completed an extensive study into six possible contingencies available to deal with Eskom's strained power reserves. All six are based on co-generation options in the event of another Eskom power shortfall, an outcome Wesizwe thought likely enough to include in its Bankable Feasibility Study. The exploration company's contingencies study reported that any Eskom failures to meet its output commitments were unlikely to affect the mine, since the Frischgewaagd-Ledig project will not need its full energy requirement of 65MW until 2016, and even a sustained Eskom ‘incident' would be unlikely to exceed more than 10% of its power needs.
Despite this, the careful junior isn't prepared to put its faith in probabilities and has decided to install the 18MW back-up generator proposed in its Bankable Feasibility Study four months ago. Although the generator isn't scheduled to be built until April 2009, Wesizwe's proposed co-generation measures, to cover the completion of shaft-sinking from September 2008 onwards, are thought to be enough to catch any Eskom shortfalls. Wesizwe still want to go further however and has begun considering the possibilities of extending its 18MW facility back-up to 65MW, capable of running the whole mine, in a new feasibility study which is still pending completion.
If it does decide to make its core project self-sufficient it might set a trend amongst its fellow miners to provide full power back-ups as well. Eskom's continuing troubles unsurprisingly dominated RBCCM's recent first platinum conference in London and Wesizwe Platinum's decision is a sign of growing frustration inside the mining world at the power utility's failure to provide a reliable service. Back-up generators could be an excellent, if costly, answer to the problem and might just help to curb turbulent platinum prices - instead of halting production in sustained shutdowns like the five-day stoppage in January. Building co-generating facilities like Wesizwe's proposal could also send precious metals to a far higher, if steadier, overall price and budgeting around the expensive generators would be a major headache for junior miners with little money to waste.
Wesizwe's proposal might even take the pressure off Eskom if it was followed by more S.A. companies. Maybe then they would be able to better provide for Africa's biggest economy. At least Wesizwe's CEO, Mike Solomon, is sleeping soundly at last now that his company has found a way to ignore the Eskom drama, commenting on the study's results ‘We have a clear, well researched and coherent strategy to deal with the situation. We are therefore not unduly worried that the power situation will impact materially on the project's progress or economics. With this issue under control, it's full steam ahead with the project.'
Wesizwe is hoping to turn from explorer to platinum producer by 2011, reaching a steady state of 350,000 4PGE ounces by 2016 at its western limb Bushveld project which, according to its Bankable Feasibility Study, has an NPV (Net Present Value) of R9.5 billion (US$1.17 billion) with an internal rate of return of 18%.