Gold price soars on South African power cuts!

JOHANNESBURG, South Africa - January 25, 2008 - Gold and platinum prices hit record highs after South Africa’s main precious metals mines were forced to close on Friday for lack of power as the government said the country faced a “national electricity emergency.”

The halt in operations came as South Africa’s government had to take the drastic step of rationing power after the embattled state electricity company Eskom said it could provide only about 50 per cent of normal needs.

Mining executives warned of a potentially devastating impact on the industry, a mainstay of the economy, as Eskom said the mines might have to stay closed for up to six weeks.

The prospect of a long stoppage pushed spot bullion in London to a record of $923.4 a troy ounce while platinum jumped to a record high above $1,697 an ounce. South Africa is the world’s largest platinum producer, with a global market share of nearly 80 per cent, and the second largest gold producer.

Rhodium also jumped to a record high above $7,000 an ounce - South Africa accounts for more than 70 per cent of the world’s supply.

Precious metals traders warned of problems in the automobile industry since platinum and rhodium are key components of the autocatalysts used to clean tailpipe emissions.

Anglo Gold Ashanti, Gold Fields, Harmony Gold and the world’s two largest platinum producers, Impala Platinum and Anglo Platinum were all hit by the power problems.

Ian Cockerill, chief executive of Gold Fields said it was working at “survival rates” only keeping the mines “dewatered” and ventilated. “We don’t know how long this will be. We are looking at various scenarios such as limited production and concentrating on higher-value areas.”

The power outage came a week after Sough Africa lost to China its century-held position as the world’s top gold producer. The country’s gold output declined last year 12 per cent to 272 ton against the 276 ton produced by China. The closure also capped a fortnight of rolling blackouts across the country.

Analysts warned that the economy would suffer from the stoppage. However, Alec Erwin, South Africa’s public enterprises minister, said that, if people became more energy efficient, the economy would not be hit.

“It is . . . critical to stress that the growth of South Africa’s economy at the current healthy levels can continue if we change our behavior and become more energy efficient,” Mr. Erwin said.

But Eskom executives accept that even if the new measures are enforced and swiftly implemented, South Africa will still lack electricity for the next five years given that their reserve margin is all but exhausted.

Eskom is developing an expansion program but the first of its planned large power station only comes on stream in 2013.