Eskom chokes investment in lucrative mines – analyst

There are opportunities for investment in the country’s mining commodity sector but power utility Eskom’s load shedding could leave potential investors in doubt about risking their money, despite the rallying prices for commodities produced by mines around Rustenburg.

An investment analyst, who wants to remain anonymous, said the performance of palladium, rhodium and platinum prices can lure investors at $2,000 (R29,500) an ounce.

The current mining indaba in Cape Town provided an opportunity for small miners to market themselves to investors, he said – and investors had taken an interest in the rallying gains by palladium, rhodium and platinum prices.

“These metals had been struggling to make profit for the last three years but things have changed. This presents a great opportunity for investors to make value for money investments,” he said.

He attributed the increased prices for both palladium and rhodium, in particular, to a strong demand for the commodities, driven by the need to reduce emission in vehicles.

Another interesting highlight was the fact that the Impala Platinum share price rose from R10 per share to R140 in the past few years – which was a potential attraction to investment. But the reduction in electricity supply by Eskom and the accompanying load shedding was a factor that could disturb investment.

“The investors are reducing their exposure to South Africa because of the uncertainty over the future of electricity supply,” he said.

“Investors have to come to SA for platinum because it has a higher yield than anywhere else.

“But investors tend to reduce their exposure because nothing is certain. Eskom, which is supposed to be a cheap producer of electricity, now worries everybody. If you are to build a plant you have to take a 20-year view of the reliability of electricity to begin with,” the analyst said.

He cited the regulatory environment as another concern to investors and refinements that needed to be done around the Mining Charter pertaining to ownerships.

“Investors are risk takers – but there has to be certainty. They want to be sure what the Eskom situation will be in the next few years,” he said.

In an attempt to attract investors, Mineral Resources Minister Gwede Mantashe has announced that mining companies will be allowed to generate power.

“This will help close the energy gap caused by deteriorating Eskom plant performance. Depending on the circumstances, the generation plant may only require registration and not licensing,” he said.

– ericn@citizen.co.za

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