EDITOR’S PICKS: TOP STORIES OF WEEK 4

The spectacular failure of South Africa’s state-owned electricity supplier, Eskom, to provide power to the nation’s industrial sector was easily the most significant event in the global mining industry during the week ended Jan. 26, the fourth full trading week of 2007.

As reported on our front page, all of South Africa’s mines were told beginning Jan. 24 to reduce their energy consumption to a minimum for the short term in order to avoid a countrywide blackout (or “load-shedding” as it’s called in post-apartheid South Africa).

The country’s miners responded quickly by suspending virtually all significant mine production as a precaution.

The sudden, unexpected production halt from a major mining nation proved to be a tonic for metal prices, with gold and platinum soaring at presstime to new, all-time nominal highs of US$929 and US$1,721 per oz., respectively, and silver popping up in sympathy to at 27-year high of US$16.70 per oz.

The crisis has also generated more than the usual amount of black humour among South Africans, with jokes like, “What is the difference between the Titanic and South Africa? When the Titanic went down, its lights were on.” And, “Before 1994 they used to shout, ‘White Power!’ After 1994 it was, ‘Black Power!’ and now it is: ‘No Power!'”

If there’s any consolation to this mess, it’s that the power crunch is more representative of Eskom’s failure to build sufficient electrical capacity for South Africa’s growing economy than a substantial decay of existing power infrastructure.

But make no mistake, this is such a deep problem that it will hamper the South African economy and constrain global mineral supply for at least several years until new power supplies come online.

Meanwhile, the higher metal prices are a boon for any miners not exposed to South Africa, and the long-term business plans of companies such as Canada’s CIC Energy, which aims to generate power for South Africa using Botswana’s coal, look smarter every day.

Readers can get a live reading of South Africa’s electrical power condition by visiting www.eskom.co.za/live/index.phpand peeking at the “Load Shedding Status” dial, where the needle spent several days in late January deep in the “Danger” zone.

The other big-picture development was the growing sense that the U.S. is slipping into a recession this year as its housing bubble bursts. The latest U.S. housing stats showed that resales fell to 4.9 million in December, the lowest in nine years, and down 22% and 32% from a year and two years earlier, respectively. For all of 2007, the median sales price of an existing single-family home fell 1.8% — the first decline in the 40-year history of the data.

Signs of a looming U.S. recession and the resulting stock market turmoil prompted the U.S. Federal Reserve to cut its benchmark overnight interest rate by 75 basis points to 3.5% on Jan. 22 — the biggest chop since the Fed started targeting the overnight rate in the mid-1980s.

Over at Capitol Hill, the White House and House leadership agreed to a US$140-billion stimulus package to juice the U.S. economy this year. It comes in the form of a tax rebate for most U.S. workers of US$300 to US$1,200, and a pledge to lift caps on mortgages eligible to be purchased by Fannie Mae and Freddie Mac. The Senate leaders aren’t yet on board.

As the rumour mill keeps grinding away on what will be the next big mining merger, Vale came out with a statement that it has indeed been talking with Xstrata regarding some kind of merger, but nothing has come of it yet.

Investors are still wondering whether BHP Billiton will bump up its offer for Rio Tinto, which failed to evolve into a friendly offer. As a counter move, Rio Tinto has been talking up the prospects of its own operations in the face of rising mineral demand from China and India.

The sums of money involved in these mega-deals are getting so big that many are wondering if the global credit markets could even absorb simultaneous bids of this scale by BHP and Vale.

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