09/07/2008 - 22:00

Norton finds fix for gas price

09/07/2008 - 22:00

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It's a curious thing when a company sheds some light onto its commercial dramas - sometimes the problem fixes itself under the glare of the spotlight.

Norton finds fix for gas price
BACK ONLINE: Norton Gold Fields Limited, which operates Paddington Gold Mine north of Kalgoorlie (adve) has reinstated its power supply agreement at normal pricing levels.

It's a curious thing when a company sheds some light onto its commercial dramas - sometimes the problem fixes itself under the glare of the spotlight.

Take Brisbane-based Norton Gold Fields Ltd, the Australian Securities Exchange-listed company that operates the Paddington Gold Mine north of Kalgoorlie.

On June 16, amid the unfolding crisis created by the shutting down of gas supplies from Varanus Island, Norton told investors that, due to a force majeure called by its electricity supplier, Alinta, the miner had agreed to an interim power supply agreement that would result in energy costs rising more than four-fold, from $90 per megawatt hour to about $400MW/hour.

Norton pointed to the Independent Mark Operator's regulated rate as the basis for the $400MW/hour price and told the market the cost impact was estimated to be $1.6 million a month for at least three months, adding an extra $140-$160 per ounce to its current operating cost of $625/oz.

With gold trading at more than $950/oz, there was no danger of Paddington making a loss, but the public release of information regarding the huge increase in energy costs clearly made waves.

The public release of commercial terms was a surprise, they've typically been secretively held close to the chests of almost everyone during this crisis.

Only a handful companies, such as Minara Resources Ltd, Newcrest Mining Ltd, Aditya Birla Ltd, Wesfarmers Ltd, Alcoa Inc and Iluka Resources Ltd, have released such information - mainly in terms of the overall financial impact of the gas crisis, rather than detailed revelations about energy prices.

Norton's announcement also prompted the state opposition's leader in the upper house, Norman Moore, to ask in parliament on June 24: "If there is no gas at $90 per megawatt hour, how can there be gas at $400 per megawatt hour?

"I would like to know whether other businesses or industry groups are in the same situation of being told daily that they have to reduce their gas consumption because there is a monumental gas crisis; however, if they pay four times more, as in this case, they can have some gas at a price that will be approved by the Independent Market Operator, who, from my understanding of the gas industry, is a government official."

As it happens, by last week the issue appears to have evaporated for Norton.

The company announced that it had reinstated its power supply agreement at normal pricing levels, backdated to cover June power costs even though it had previously agreed to pay the higher rate.

As part of the deal to restore power pricing to pre-crisis levels, Norton agreed not to pursue any claims against Alinta for lost production of 3,500oz.

Norton managing director Jon Parker confirmed the result from talks with Alinta, as per the announcement, but offered no further comment on what had transpired.

"As a result of those discussions Alinta restored prices retrospectively," Mr Parker said.

"They asked in return that we agreed to waive any claims we might have."

Alinta was not able to clarify whether this was an isolated example or whether the power company had been involved in renegotiations of this nature with other energy customers.

IMO CEO Allan Dawson said that, while his organisation was not a party to any negotiations between supplier and customer, the $400MW/hour was a legitimate rate established via the wholesale electricity market, which represents only about 10 per cent of electricity traded in the state.

"A small portion is traded in the wholesale electricity market, and those prices do reflect that WA is burning a lot of diesel to generate that electricity," he said.

Mr Dawson said the IMO looked at factors influencing energy prices and, based on that, set an upper limit on what it would allow energy to be traded at in the wholesale market.

The limit, Mr Dawson said, was currently well above $600MW/hour.

"At this stage, electricity prices have not got near those limits."

The IMO also had some good news for businesses desperate for gas, with the newly created Gas Bulletin Board starting to generate some interest.

"The indications are that momentum is building as people work how to function with the new structure," Mr Dawson said.

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