South Australian storm, outage wreak havoc on steelworks, mines

South Australia’s power outage has wreaked havoc on some of the nation’s biggest industrial and mining ventures.

Storm damage in the town of Blyth, South Australia.

South Australia’s state-wide power outage has wreaked havoc on some of the nation’s biggest industrial and mining ventures, cutting more than $50 million of revenue at major sites and causing serious damage to the Port Pirie lead smelter and the struggling Whyalla steelworks.

Costs could run into the hundreds of millions of dollars according to the Australian Industry Group, which says the outage has substantially damaged South Australia’s reputation as a place to do business.

Domestic airlines suffered in the power outage, with eight flights cancelled at Adelaide Airport on Wednesday night and another six yesterday morning. There were no cancellations for international flights.

Virgin Australia was hit hardest, with 12 of the 14 cancellations.

The lead smelter, which is the world’s biggest, Arrium’s Whyalla steelworks and its nearby iron ore mines, BHP Billiton’s Olympic Dam copper and uranium mine and OZ Minerals’ Prominent Hill copper mine were all still shut last night, more than 24 hours after going off line.

The outage will cost the businesses an estimated $15m combined in daily revenue, before costs of repairs and start-ups.

Once grid power returns, production will take two weeks to ­return at Port Pirie, and work is unlikely to be able to start quickly at Whyalla.

Substantial damage has already been reported at the Port Pirie smelter’s blast furnace, which will be offline for up to two weeks because the outage caused slag inside the furnace to freeze, costing up to $7m of lost pre-tax earnings on top of repair costs.

At Whyalla last night, it appeared that emergency power had averted what would have been a disastrous cooling of the steel blast furnace.

But Arrium, being run by administrators KordaMentha, was still racing to find more power to prevent molten steel solidifying in four 180-tonne ladles, an un­controlled cooling of the kiln at the sites pellet plant — which would take three weeks to repair — and freezing of iron ore slurry in pipelines to the pellet plant.

“The major businesses across the state — BHP, ourselves, Port Pirie, Santos — we’ve all been concerned about redundancy risk and now it’s happened,” administrator Mark Mentha told The Australian. “The challenge will be, at a state or national level, how do you shore up the South Australian grid.”

Mr Mentha said the outage “couldn’t have come at a worse time” for Arrium, which was trying to bed down productivity gains to keep the steelworks profitable, so it could be divested through a trade sale or listing, along with the rest of the company’s mining and steel assets.

He would not quantify potential costs of the outage.

“I think we’ve avoided the worst (a blast furnace freeze), but there are residual issues that could still be costly,” Mr Mentha said.

“It’s a crisis that is becoming a bigger one as time passes — the lack of power is exacerbating lots of issues across our plant and mines and the weather is not abating ... we don’t think the outlook for power is great, so we’re trying to find alternative power through generators and the like.”

Whyalla’s back-up gas generator, which had been running in anticipation of a blackout, was itself tripped up when the outage came.

Belgium’s Nyrstar, which acquired Port Pirie from zinc miner Zinifex in 2007, said a back-up generator had sustained the blast furnace for several hours but the prolonged outage had proved too much.

“We are obviously very disappointed that the power supply in South Australia has failed and the impact that this has caused to the Port Pirie plant,” Nyrstar’s Zurich-based chief executive Bill Scotting said yesterday.

Ai Group chief Innes Willox said total costs would probably run into the hundreds of millions of dollars once start-up, clean-up and repair costs were included.

“This puts a dagger in the heart of the reputation of the state as a reliable place to do business,” Mr Willox told Sky News last night.

“The bill for this will be extremely high. The question will be what recourse there is, if they (businesses) choose to go down that path.”

The outage hit on Wednesday afternoon after a severe storm damaged power lines north of Adelaide. The Australian Energy Market Operator said yesterday it was unclear why this had resulted in a “cascading failure of the remainder of the South Australia network” and that this would be subject to further investigation. Last night AEMO suspended the spot market for power pricing, after prices peaked to more than $13,000 per megawatt hour on Wednesday.

Power was restored to Port Pirie and Whyalla residents yesterday.

The state’s two big copper mines suspended production because of the power outages.

It is understood BHP has also been searching for spare generators to try to get as much power as it can at Olympic Dam, near the town of Roxby Downs, until grid power is returned.

“Back-up generators are currently providing power to critical infrastructure, which will allow a restart of operations when power is restored,” a spokesman said.

Adelaide-based OZ said it had no definitive timeline that suggested when power would be restored to its site near the Woomera rocket range.

Insurance companies are closely monitoring the impact of the storm, but with phone lines out across the state, claims have not been flooding in.

What is worrying the insurers, however, is the harsh start to the storm season.

The Insurance Council of Australia last week declared a catastrophe following major flooding in Forbes in central NSW, while western Victoria suffered floods earlier this month. IAG exceeded its natural perils allowance last year, while Suncorp recently bulked up its catastrophe and weather reinsurance program.

A QBE Insurance Australia spokeswoman said the company believed the claims volume would not be as severe as first anticipated.

“At this stage we think the main losses will be for business interruption due to storm damage to the power network and food spoilage, particularly in those areas where power is yet to be restored,” she said.

Santos, which runs the Moomba gas plant in the Cooper Basin that straddles the Queensland and South Australian borders, was unaffected by the outage because it does not use grid power.

The privately owned Coopers Brewery was unaffected by the power disruption as it has its own generator and cogeneration plant.

Additional reporting Mitchell Bingemann, Eli Greenblat