Palladium, platinum provides silver lining as Eskom wreaks havoc with rolling blackouts

By Colleen Goko and Roxanne Henderson

(Bloomberg) – South Africa has been hit by a sixth straight day of rolling blackouts as state-owned power utility Eskom acts to prevent a total collapse of the grid after a raft of plant breakdowns. The company implemented a record level of cuts – 6,000 megawatts – late on Monday, prompting platinum and gold mines in the country to halt operations.

Highlights so far:

  • Eskom says there’s a high likelihood of cuts all week. The utility plans to cut 4,000 megawatts – known as Stage 4 – until late Tuesday.
  • Producers including Sibanye, Implats and Harmony stopped mining operations and mobile-phone networks have been affected.
  • The City of Cape Town warned that a return to Stage 6 could lead to water-supply interruptions.
  • Rains that have soaked coal and caused flooding may continue through Friday.

Rand falls

The rand fell over 1% to R14.85 per dollar by 16:30 in Johannesburg. It was the outlier in emerging-markets, which traded largely flat versus the dollar. The South African currency has now weakened two days in a row after Eskom raised the blackouts to a record level on Monday. The rand declined on Tuesday by the most on a closing basis since October 30.

Perfect storm for insurers

Between the power cuts and heavy rains causing flooding in parts of South Africa, it’s a “perfect storm” for insurance companies at the moment, said Christelle Colman, a spokeswoman for Old Mutual’s property and casualty insurance unit.

The business typically expects higher levels of claims during periods of extended loadshedding, she said. These vary from claims related to frozen foods spoiling in freezers when outages exceed the scheduled time period to power surges damaging electronics around the home.

There’s also an increase in claims due to power surges and motor car accidents during night-time blackouts. The rotating power cuts also mean more incidents of theft and robbery, especially during December when South Africans travel for summer holidays.

Battery theft and connectivity

The constant outages are affecting the performance of batteries powering MTN’s equipment, said Africa’s largest wireless carrier. The company spent about R300m last year ($20m) on batteries for existing sites and has 1,800 generators in use.

The company is also having to spend more on security to protect its batteries, generators and general site equipment from thieves and vandals.

“Loadshedding is seeing entire neighbourhoods cloaked in darkness at predictable times, which is offering criminals greater cover for their thieving,” the company said.

Vodacom said its customers around the country will be experiencing network-connectivity issues due to the Stage 4 loadshedding affecting its mobile phone towers.

“Our towers do use batteries as a back-up but these do have limited power and will eventually fail,” said spokesman Byron Kennedy.

“A notable complication with Stage 4 loadshedding over consecutive days is that batteries don’t get enough time to recharge to full capacity.”

Vodacom has recently put mitigation measures in place including additional batteries and generators around the country, he said.

Manufacturing contracts

South Africa’s statistics office said factory production contracted for the fifth consecutive month in October, when Eskom implemented the previous round of power cuts. That adds to the risk of a second recession in as many years. Manufacturing accounts for about 13% of gross domestic product.

Mining impact

Anglo American Platinum said that the rolling blackouts may add to its production costs this year, which are already likely to exceed an earlier forecast.

The company is engaging with Eskom to understand the technical constraints and see where it can assist, spokeswoman Jana Marais said separately.

“We have standby diesel power generators in place, and all our operations have emergency-response plans which detail what should happen in the event of loadshedding. This includes the safe evacuation of employees, shutdown procedures and communications.”

Gold Fields, which operates one mine in South Africa, said the impact of power cuts has been limited so far.

“We have managed the impact so far by shifting load between critical activities to ensure our core mining activities can continue,” said spokesman Sven Lunsche.

“If loadshedding continues at Stage 4 or above for a prolonged period, however, and there are sustained interruptions linked to our production ramp up it will become more challenging and we will need to implement alternative mitigations to ensure business continuity.”

Cape Town water

A return to Stage 6 could lead to water-supply interruptions in Cape Town, the city warned.

“Loadshedding of this severity is likely to constrain our ability to provide water supply in the reticulation system across the whole of Cape Town in the usual way,” it said in a statement. “Residents should not panic, but please use water sparingly and prepare just in case they do experience a period of no water supply.”

Platinum, palladium rise

Platinum and palladium led gains among major precious metals after South African producers said they had stopped operations. Platinum gained as much as 1.2%. Palladium rose as much as 0.6% to a fresh record of $1,894.47 an ounce, closing in on $1,900 for the first time. The metal has rallied 50% this year amid tight supply.