Australia’s gold and coal mining companies may soon be contending with large spikes in electricity costs, as they renegotiate roughly $500 million of power contracts by 2020.
Miners will be signing on to new agreements in the midst of market uncertainty, which is seeing the closure of coal-fired power plants, rising gas prices, and a transition towards renewable energy sources.
The situation has caught the eye of Goldman Sachs. According to that firm’s analysis:
“Newcrest’s flag-ship Cadia operation has guided to a 90% increase in power prices as their existing power contract expired on 30 June 2017 and the company needed to negotiate a new contract in the current market turmoil.
The increase power costs at Cadia represent a c.$40/oz increase in 2017E unit costs (around 8% of the total cost base). The financial impact is considerable when you consider Cadia can produce up to 800koz p.a of gold. Thus the power price hike represents a $32m increase in their future annual power bill.”
Cadia isn’t the only company that may be facing harder times. The contracts for Evolution Mining’s Cowal operation, South 32’s Illawarra Coal site, and Whitehaven’s Narrabri mine will also likely need to be renegotiated soon.
Read the full article in Barron’s.