When I was a General Partner of Lazard Freres in the 1980s, we actively traded the South African US dollar bonds issued by Eskom, which at the time was the highly efficient, modern, and extremely well run and capitalized utility in South Africa, and the biggest power company in Africa.
It is remarkable what has happened to Eskom since then; now a troubled utility. Don't take those words literally... I have not been close to Eskom nor done any analysis, but am simply sharing my intuitive sense of things. YES, IT IS CRITICAL HOWEVER, SINCE TO MINE FOR PLATINUM GROUP METALS OR GOLD IN SOUTH AFRICA, IT IS NECESSARY TO HAVE ELECTRICITY.
Just two days ago, NERSA, which is the National Energy Regulator of South Africa, approved power hikes that will create significant margin pressure, especially for Gold producers. Electricity costs will increase 13.81% in 2019; 8.1% in 2020; and 5.22% in 2021. From what I understand, electricity currently represents 15% of the cost of mining for Gold. WOW! This is an issue!
Yes, it impacts PGMs as well, of course, but there will be some insulation given what I anticipate to be continued price increases in the PGM price. Ultimately, Gold will follow, and Gold and Platinum price increases will be the only savior to what is a dysfunctional power system in South Africa.
If anything, this underscores the small size of the PGM market, and its exposure, since 60-70% of the world's Platinum comes from South Africa.