South32 hit the sweet spot with the National Energy Regulator of South Africa (Nersa) approving a rand baseline energy supply agreement for its Hillside Aluminium smelter to continue at least until 2031, supplying Eskom’s coal requirements. Photo: Reuters
South32 hit the sweet spot with the National Energy Regulator of South Africa (Nersa) approving a rand baseline energy supply agreement for its Hillside Aluminium smelter to continue at least until 2031, supplying Eskom’s coal requirements. Photo: Reuters

South32 welcomes competitive Nersa energy deal

By Banele Ginindza Time of article published Jul 26, 2021

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South32 hit the sweet spot with the National Energy Regulator of South Africa (Nersa) approving a rand baseline energy supply agreement for its Hillside Aluminium smelter to continue at least until 2031.

Mining firm South32 hit the sweet spot with the National Energy Regulator of South Africa (Nersa) approving a rand based energy supply agreement for its Hillside Aluminium smelter to continue at least until 2031.

The agreement secures the smelter’s energy supply under a tariff that is South African rand-based with a rate of escalation linked to the South African producer price index.

The new agreement replaces contracts which in some cases were US dollar-based and linked to the aluminium price on the London Metals Exchange.

’’With the new tariff agreed, Hillside remains competitively positioned on the global smelter cost curve, with operating unit costs for FY21 (full year 2021) reflecting the higher power charges from the new agreement incurred since August 1 last year,” the mining firm announced on the Johannesburg Stock Exchange News Service on Friday.

South32 chief executive Graham Kerr said on Friday: “We welcome the new agreement which further extends the long-term working relationship between South32 and Eskom. Hillside has been a major Eskom customer for 25 years and this agreement provides power cost certainty for a further 10 years, with Eskom receiving a price aligned to long-term tariff policy.’’

“Eskom also retains the current flexibility to interrupt supply to the smelter to support management of the national electricity grid and minimise load shedding.”

In South32’s June 2021 quarterly report released earlier this month, it said Hillside Aluminium saleable production had decreased by 1 kt (kiloton) to 717kt in full year as the smelter continued to test its maximum technical capacity, despite the impact to production from increased load shedding.

Sales decreased by 12 percent in the June 2021 quarter as ongoing congestion in the global freight market led to a slipped shipment at the end of the period.

It had forecast that the second half of the full year 2021 operating unit costs were expected to increase half-on-half for the first half full year 2021 $1 536 a ton (R22 797) for the smelter reflecting a stronger South African rand, and higher raw material input and freight costs.

South32 said the smelter remained an important contributor to South Africa’s economy, both directly through local employment and through its integration with significant downstream industries that relied on Hillside’s output.

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