The Economic Impact of Electricity Price Increases on ... - Eskom

Of the mining firms, it is only platinum producers that are likely to be
able to pass higher electricity costs onto their consumers
Firm Sector <strong>Electricity</strong>
costs %
total costs
Comment Ability to
pass on
costs
Northam Platinum 6.6% Good
AngloPlat Platinum 5.0%
Implats Platinum 6.0%
Lonmin
Platinum
Reliance <strong>of</strong> selected mining companies on electricity and
ability to pass on increased costs
Big geographic concentration but, in the medium term,
pricing power in Platinum is strong.
Big geographic concentration but, in the medium term,
pricing power in Platinum is strong
Very Good
Very Good
Platinum 3.0% Good
Harmony Gold 12.0%
Worst positioned within the Gold sector. We see the
ability to pass this cost on as very poor.
Very Poor
Gold Fields Gold 7.0% Poor
AngloGold
Ashanti
Gold 6.0% Poor
Merafe
Diversified
mining
21.0%
We believe ability to pass cost on is reasonably good -
SA is
50% <strong>of</strong> world production.
ARM is generally a price taker and as a result has
limited ability to pass prices onto customers. <strong>The</strong> PGM
Good
ARM
Diversified
mining
7.0%
and ferrochrome industries are dominated by SA
supply, and as prices are in the high percentiles <strong>of</strong> the
total cost curve, there is better ability than other
materials to pass on price increases, or face closure
For heavy minerals the operations are not the global
prices setters but costs are near marginal cost, and
Poor
Exxaro
Diversified
mining
4.0%
there has been limited benefit from higher prices in
recent years. SA is not large enough to directly
influence prices but the steepening <strong>of</strong> the cost curve is
supportive.
Only commodities where SA is the marginal producer
Poor
Anglo
Diversified
mining
3.0%
are able to pass cost increases onto consumers. <strong>The</strong>se
include PGMs (Platinum Group Metals), ferrochrome,
and, to some extent, manganese
Iron ore prices are determined between large Brazilian
Moderate
Kumba
Diversified
mining
3.0%
and Australian producers and Eastern consumers.
<strong>The</strong>re is no ability to pass price pressure onto
consumers other than for the cost plus contracts with
ArcelorMittal SA
Poor
24 Source: Deloitte analysis adapted from (Deutsche Securities, 2010)
Vulnerability <strong>of</strong>
sectors to rising
electricity prices
Passing on the costs
• Given limited above-ground stocks,
the large proportion <strong>of</strong> global
production that SA contributes and
the current level <strong>of</strong> industrial
consumption , it is argued that the
platinum sector should be able to
pass higher electricity costs onto its
consumers
• Gold sector analysts believe that the
sector will have little capacity to pass
on any costs to consumers because
<strong>of</strong> large above ground reserves and
SA’s falling percentage <strong>of</strong> world
production (8% - 10%).
• Of the diversified mining companies,
only Merafe (really a manufacturer) is
in a good position to pass on
increased costs, since it controls 50%
<strong>of</strong> world supply. <strong>The</strong> other diversified
miners are believed largely to be
price takers in the markets in which
they operate and so have little pricing
power.
©2012 Deloitte Touche Tohmatsu Limited. All rights reserved.
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