Palabora Mining Company

Transcription

1 Palabora Mining Company The effect of power tariff increases A presentation by Nick Fouche General Manger Growth (Investment projects) 29 January 2013

2 Palabora Mining Company Company overview Palabora Mining Company in the Town of Phalaborwa with copper and magnetite operations Employs approximately 4000 employees and contractors Contributes significantly to local and regional GDP. Existing mine life ends in 2015 due to ore body (Lift I) depletion A pre-feasibility study, for a second level of mining (Lift II), has been undertaken to extend the life of mine to 2030

3 The effect of 16% tariff increases on Palabora The extension of the mine is affected The rise in electricity prices has a significant impact on future expansion and operations of PMC, who is exposed and dependant on global market prices. The Net Present Value, to extend mining operations, is reduced by 30% due to real increases (based on 16% average) arising from the 5 year tariff announcement. The business case for future investment, and extension of the mine, is thus severely impacted by the proposed increases. If these tariff increases are approved then future expansion at PMC becomes potentially unattractive for investors.

4 Is it 16% or 21% for Industrial? Eskom Percent Price Increase Exert from Eskom MYPD3 Unpacking our MYPD application to Nersa Part 2 Eskom MYPD Part 2 brochure Profit through energy transformation ensight-consulting.co.za 4

5 The rising cost of power at PMC Energy cost has more than doubled 9.00 Cost of power at PMC 10.0% % % US cents/kwh % 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% % of operating costs % Average power tariff (at 16%) Energy (%) operating costs

6 Escalating energy costs is prevailing Energy is becoming the single biggest expense after labour Electricity Cost Escalation - Eskom PMC Energy Cost of Copper Production USD cents per kwh Electricity CPI USD cents/pound Profit through energy transformation ensight-consulting.co.za 6

7 Comparison Electricity Price (2013) Current South African electricity prices ranks with the highest in the world Electricity Price (US cents per kwh) USD Cents/kWh Eskom Megaflex South Africa United States Australia Canada Profit through energy transformation ensight-consulting.co.za Canadian Electricity Price source United States Energy Information Agency Based on ZAR_US$ at R9/USD Cost of power at 7.8 exchange then price is 7.05 US cents per kwh 7

8 ..but the impact with the 16% increases South Africa will become the highest energy cost in resource based industrialized economies USD Cents/kWh US, Canadian and Australian Industrial Electricity Price USD Cents/kWh Projected South African Eskom Magaflex Electricity Price Increase Global benchmark 4.00 Profit through energy transformation ensight-consulting.co.za Eskom Price Rise USD Cents/kWh 8

9 Palabora is trying hard to manage energy efficiency PMC has embarked on a comprehensive energy saving programs with Ensight covering every aspect of the operations. At least 60 energy saving projects have been implemented and 18 have already approved by Eskom in Q The proposed tariff increases however far outweigh any energy saving benefits The efficiency improvements are based on engineering initiatives within the operating and processing environments 9

10 Examples of energy saving projects Meeting real needs at least cost Apply whole-system design Reveal every opportunity Operate converter blowers to meet the needs of the converters and the acid plant by training power station and converter plant operators. 44% energy saving R7.8m / annum energy savings Demand management of the underground electrical chillers in Eskom peak season, incorporated into SCADA Average electrical load of during Eskom peak season 2.2MW R1.44m / annum Replace SO2 blower guide vanes with variable-speed-drive and induction motor 70% energy saving R6m / annum energy savings Profit through energy transformation ensight-consulting.co.za 10

11 Electricity prices rises beyond inflation are not sustainable The copper prices are projected to fall based on consensus pricing models Declining Cu prices Power tariff (US cents/kwh) Cu price (US$/lb) Average power tariff (at 16%) Copper price (consensus)

12 Sustaining the future How does the increase in electricity prices impact on the Lift II investment A Mega Project is required for a second lift expansion with a modest business case. Given the rates proposed (16% for 5 years) the project is not a robust economic proposition At the industrial rate (of 21%) the project becomes unfavorable. If an inflationary tariff increase is approved, the Lift II investment value is increased by approximately 50%, moving into a category where the economic sensitivities have lower impact. Does NERSA take into account, the impact of resource sector viability and development, when approving electricity price rises above inflation?

13 What is required? Proposed actions and way forward PMC offers to work with NERSA to model impact of price rises on operations and the socio-economic effect of such rises. NERSA takes in account the significance of the price increases to the cost base of industrial operations NERSA should consider, limiting tariff increases to globally exposed industries such as, copper mining which is dependent on globally set market prices. NERSA ensure that Eskom industrial prices are globally competitive. An inflation based increase is required to ensure a market competiveness and the economic viability of future investment in Palabora mine extension (Lift II).