THE high cost of electricity has had a negative impact on the operating costs of mining companies, according to Xstrata Merafe Resources managing director Deon Dreyer.

Dreyer said this during a site visit by North West MEC for economic development and tourism Tebogo Modise and members of the Industrial Development Corporation (IDC) to the company's Rustenburg operations yesterday.

Dreyer said power price increases, coupled with potential carbon taxes, would make South African mining operations expensive, which may lead to job losses and less investment in the country.

"Electricity prices are posing a serious threat to the entire industry in terms of its negative impact in our production and operating costs.

"In recent years, we have been forced to invest in energy-saving technologies just to increase our profits and retain jobs," he said.

The IDC funded the Merafe Resources Ferrochrome Mine by about R27million.

Merafe Resources is the country's largest producer of ferrochrome.

It is in a joint venture with global diversified mining group Xstrata.

This project had created about 1400 jobs.

Merafe saw its profits drop from R189million to R86million for the six months ended June 30.

The 54percent drop in earnings was attributed to increased production costs and strengthening of the rand.

IDC regional manager David McGluwa said they wanted to upgrade operations by bringing stainless steel companies to the plant.

During 2011, stainless steel production is expected to grow by six percent.

This will be equal to an increase of five percent in the world consumption of ferrochrome.

This will mean a huge jump in demand from China.

Stainless steel production is expected to continue growing at around five percent a year in the medium term.

This will be driven predominantly by the increasing demand from China.

Modise said: "This will create more jobs for communities close to the mine."