Miners take hands-on approach to power shortages

（Reuters） - More mining groups are being forced to build their own power plants, sending a few into the utility business and making the whole sector into a more complex investment proposition.

Volatile global oil prices and power shortages in nations such as South Africa have lifted the importance of electricity for mining companies, curbing growth plans and boosting costs.

Miners have had to take more of a hands-on approach to power as their quest for big deposits has taken them to remote areas of the globe that are deficient in electricity.

Mining groups Xstrata and Anglo American are working on feasibility plans to use waste coal in South Africa to fuel generation plants, Rio Tinto has plans for hydropower plant in Cameroon while copper producer Kazakhmys has become the biggest power generator in its home market of Kazakhstan.

"I guess there's a power supply problem in all emerging markets and miners are having to go to off the beaten track to try to find resources," said analyst Tom Gidley-Kitchin at Charles Stanley in London.

Most mining groups are getting into power on a case-by-case basis out of necessity, not wanting to stray too far from their core expertise of digging minerals out of the ground.

The move into the wider power generating business is likely to be limited to emerging market players such as Kazakhmys and Indian-focused group Vedanta, capitalizing on surging electricity demand on their home turf, analysts said.

"Although it sounds good in theory, you need to be working with the government and therefore their interests are relatively high priority rather than just your investors," said analyst Gavin Wood at Nomura.

GROWTH CONSTRAINT

Often, the availability of electricity is a key factor in whether a new metals project can get the green light, especially for power-hungry smelters making aluminum and ferrochrome.

"Certainly the lack of power is an inhibiting factor in our chrome business," Xstrata Chief Executive Mick Davis told Reuters earlier this year. "One of the ways of managing that is 'own generation'."

Xstrata is in the midst of a feasibility study for a 300 megawatt plant using waste coal in South Africa that would cost about $750 million to provide power to an expanded ferrochrome smelter.

Anglo American is working on a similar project in South Africa and has issued a tender for a partner to build a coal-fired power station using low-quality coal that ends up on waste heaps, spokesman James Wyatt-Tilby said.

The plant would supply power to the grid in South Africa, where a power crisis in 2008 shut down mines and other industries. Its main power provider called for urgent action this year to ensure an adequate future supply.

Rio Tinto, which already has an extensive network of power plants for aluminum, the most energy-intensive metal to produce, has plans for a new smelter project in Cameroon that includes a hydropower operation.