Diversified miner South32 may resort to putting its Mozambican Mozal aluminium smelter on care and maintenance next year as energy costs strangle smelters across the continent.
The move would put about 5,200 employees’ jobs on the line, with as many as 22,000 jobs indirectly at risk of being lost.
Mozal is the largest industrial employer in Mozambique, contributing about 30% of the country’s manufacturing output and just more than 3% of its GDP.
“To be clear, [putting Mozal on care and maintenance] is our plan. This isn’t a negotiation tactic, this is what we’re planning for,” South32 CEO Graham Kerr told Business Day.
The group announced on Thursday that it would take a $372m (R6.53bn) impairment on Mozal after deciding that the operation was most likely to be placed on care and maintenance in March 2026.
The decision came after a fruitless attempt to negotiate with Eskom, the Mozambican government and Mozambique’s leading hydropower group Hidroeléctrica de Cahora Bassa (HCB) over a new power purchase agreement for next year, said the company.
“These engagements do not provide confidence that Mozal will secure sufficient and affordable electricity beyond March 2026,” the group said in a statement.
Rising energy costs, spurred by years of double-digit electricity tariff hikes, have put a chokehold on SA’s smelter industry in recent years.
Earlier this year, Glencore, through its chrome pooling and sharing venture with Merafe Resources, suspended its Boshoek and Wonderkop smelters, having already closed 10 of its 22 furnaces over the past four years.
The Switzerland-based miner explained that high electricity prices had made it more viable to export raw chrome ore out of SA than to smelt it into ferrochrome locally.
Another smelter closure in KwaZulu-Natal, announced by SA mining company Assmang last month, will result in 600 workers being retrenched by the end of August.
With the industry in crisis, the government has moved to extend negotiated pricing agreements (NPAs) to SA’s alloy and ferrochrome industries, allowing these companies to negotiate their electricity prices in a bid to promote beneficiation in these energy-intensive sectors.
Kerr was supportive of this plan, saying that it lined up with global trends, as more countries focused on securing their local industrial electricity supplies amid a broader shift towards protectionist trade policies.
“My guess is the government in SA is looking to create some employment opportunities and bring industry a little bit back to try and help grow the economy,” said Kerr.
He said Eskom had battled to produce power and keep the cost of its power in check relative to other parts of the world.
“If you look at the approvals they have looked for in terms of price increases, you probably wouldn’t find another set of increases like that anywhere over a sustained period of time.
“There has been an escalation in cost which is making it very difficult for businesses to operate in SA, and I think that’s where the government is trying to help,” said Kerr.
South32’s Hillside smelter in Richards Bay made headlines earlier this year when Open Secrets reported that the operation had received a significant and confidential discount on its electricity bill from Eskom, resulting in savings of R92bn over the preceding decade.
While the “secretive” pricing agreement sparked widespread controversy over South32’s significant discount compared to other consumers, Kerr argued that the criticism was unwarranted.
“It’s very hard to compare a residential or small business bill to that of a smelter. Residential has peaks and troughs, ups and downs, whereas we run at about 99% all the time, so Eskom has a great baseload to plan around.
“We are also the largest paying customer and we pay on time. They have a lot of people that don’t pay their bills. Plus, if you took Hillside out of the system, that would be catastrophic for Eskom,” he said.
South32 said it would limit investment in Mozal, including stopping pot relining and standing down contractors in this segment of the operation this month.
The $372m impairment, which will reflect in the company’s upcoming annual results, reduces Mozal’s carrying value to $68m.
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