MiningWeb Weekly: Eskom’s “last-chance deal” for SA smelters - Peter Major on what comes next

Eskom has given ferrochrome smelters a three-month stay of execution, but Peter Major warns that the real battle is only beginning. In this explosive MiningWeb Weekly, Major breaks down why SA industry is collapsing under electricity costs, what China is doing right, and why government must choose competitiveness over ideology if it wants mining, PGMs and beneficiation to survive. He also sounds a serious alarm on the gold price bubble — and explains why platinum still makes more long-term sense for investors..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here. .Watch here.Listen here.BizNews Reporter.In this week’s MiningWeb Weekly, mining analyst Peter Major says Eskom’s three-month “stay of execution” for ferrochrome smelters is welcome, but it is only the start of the real battle facing South African industry. The agreement buys time, but it also raises the question that will not go away. If the smelters deserve urgent intervention, what about the rest of South Africa’s energy-intensive sectors that are equally close to the edge? Major joined Alec Hogg to unpack the deal. Two smelters, including Boshoek and Wonderkop, were preparing to shut down after Eskom’s earlier forty percent tariff cut still proved too little to keep them viable. Now Eskom has offered another temporary reprieve while all parties try to build a new pricing framework. Agnes Mlambo, Eskom’s head of distribution, insists a workable solution is possible and that Eskom will push through Christmas to make it happen.Major says the optimism is justified, but the urgency should worry government. “What about the other industries,” he asks. “People who extrude aluminium, people refining copper in Phalaborwa, the steel industry that has been hammered for years. They will look at this and ask why they are still paying unaffordable rates.” His concern is not simply fairness. It is the fear that policy is slipping toward knee-jerk crisis management rather than long-term strategy. He compares it to day trading. One minute you go short, then you go long, then you write it off and try again. South Africa cannot run national energy policy that way. “You have to have a firm, established policy,” he says, “and for years our policy was cheap, reliable electricity that made beneficiation competitive.”Major points to China as an uncomfortable benchmark. China cut the real cost of electricity year after year, using coal where necessary, adding nuclear where possible, and rolling out wind and solar only where it made strict economic sense. The point was always clear. Electricity must be cheap if industry is to be globally competitive. South Africa once held that advantage. It does not anymore.The political tone has shifted, though, and Major acknowledges it. Government, he says, seems to have woken up to the reality that industry produces jobs and foreign exchange in a way ideology cannot. For the first time in years, government and Eskom appear focused on saving what can still be saved. But one decision will not reverse years of damage, and if electricity pricing does not change properly, nothing else will matter.Can South Africa actually compete if smelters need cuts deeper than forty percent? Major believes it is possible. If electricity makes up sixty percent of a smelter’s costs, a forty percent cut reduces overall costs by almost a quarter. That is meaningful. But any relief collapses if Eskom continues hiking tariffs eleven percent a year. South Africa needs below-inflation increases. In fact, he says, it needs real decreases. Anything else is just talking around the problem. On the question of timing, he is surprisingly relaxed. Three months, he says, is enough time to build a sustainable agreement if everybody is serious. But the deal must be real. It must withstand scrutiny. “You want to say this is a concrete foundation,” he explains, “not something held up by a few logs that collapses if someone kicks one out.” That will require hard bargaining from all sides. Glencore will not accept a whitewash. Other industries will not accept empty promises.The underlying problem, he argues, is that government tries to serve too many masters. The unions, the Communist Party, internal ANC factions, international commitments. “You cannot give four or five different people your priorities,” he says. “This is survival of the country. That is the priority.” Market reaction has been muted. Merafe’s share price fell after the announcement, which surprised some investors expecting a bounce. Major is not concerned. Short-term moves, he says, deserve a glance but not a U-turn. Trends take years to form, and the trend for South African mining has been shaped by high electricity costs, collapsing rail and port infrastructure, and narrowing margins. Lower power prices alone will not fix everything. But they are the right place to start.The conversation then turns to gold, which Major believes is flashing clear warning signs. The Bank for International Settlements has raised concerns that gold is heading toward bubble territory. Major agrees and backs his view with historical and structural comparisons. Gold is at a record high relative to money market returns. It is at extreme levels relative to oil. It has only once before been this expensive in real terms, and that spike did not last. “Something is out of line,” he says, and investors should beware of building portfolios that depend on a four thousand dollar gold price. PGMs, in contrast, look more attractive to him. South Africa dominates global reserves and production. The market is smaller and more balanced. Prices are above long-term averages but not wildly so. And the fundamentals matter. If production is cut even modestly, the market feels it. That is not true for gold. “I feel a lot safer with our platinum shares than our gold shares,” he says. His final message is direct. Government does not need to reinvent anything to rescue South African industry. It simply needs to remove the barriers and step back. “Our industries know what to do,” he says. With less regulation and fewer ideological detours, South Africa could rebuild competitiveness far faster than people believe.“That is the Christmas present government could give us,” he says. “Less regulation. Less policy. Let industry do the work.”

MiningWeb Weekly: Eskom’s “last-chance deal” for SA smelters - Peter Major on what comes next

Related Stories