South32's Mozal Smelter Faces Uncertain Future Amid Power Challenges
South32 has announced plans to place its Mozal aluminium smelter in Mozambique on care and maintenance starting March 2026. This decision follows unsuccessful negotiations with the Mozambican government, the Cahora Bassa hydroelectric scheme, and power company Eskom to secure sufficient and affordable electricity beyond the current agreement's expiration.
The announcement represents a significant shift for one of Mozambique's most important industrial operations and highlights the ongoing challenges facing energy-intensive industries in regions with power supply constraints.
Understanding the Current Situation at Mozal
The Mozal aluminium smelter, located near Maputo, has been a cornerstone of Mozambique's industrial sector for over two decades. As South32 prepares to scale back operations, the company has outlined a clear timeline for the transition.
Currently, the facility produces approximately 355,000 tonnes of aluminium annually (FY 2024-25). However, this figure is expected to drop significantly to around 240,000 tonnes in 2026 as the smelter winds down operations. This reduction will result from fewer pots in operation and limited activities through March 2026, when the facility will transition to care and maintenance status.
The financial implications for South32 are substantial. The company has announced a total impairment of $US372 million, broken down as:
- $US339 million in property, plant, and equipment
- $US7 million in intangible assets
- $US26 million in raw materials and consumables
This impairment has reduced the smelter's carrying value to just $US68 million—an 84% reduction from its previous valuation.
Why is South32 Mothballing the Mozal Smelter?
The primary factor driving South32's decision is the inability to secure reliable and cost-effective electricity for the smelter beyond March 2026. Aluminium production is extraordinarily electricity-intensive, with power typically representing 30-40% of total production costs.
"The decision to place Mozal Aluminium on care and maintenance is not one we have taken lightly," a South32 spokesperson noted in their announcement. "Despite extensive negotiations, we have been unable to secure the long-term, competitively priced power arrangement necessary to maintain economically viable operations."
The company has already begun implementing operational changes in preparation for the transition:
- Pot relining activities have ceased immediately
- Associated contractors will be stood down starting August 2025
- Capital investment in the facility will be significantly limited moving forward
Industry analysts point out that the Mozal situation reflects broader challenges facing aluminium producers globally, as energy transition challenges become increasingly complex and volatile.
What Makes Aluminium Smelters Vulnerable to Energy Issues?
Aluminium smelting stands among the most energy-intensive industrial processes in the world. The Hall-Héroult electrolytic reduction process, the standard method for extracting aluminium from alumina, requires enormous amounts of continuous electrical current.
A typical modern aluminium smelter consumes between 13 and 15 megawatt-hours (MWh) of electricity per tonne of aluminium produced. For perspective, this means the Mozal facility at full capacity requires approximately 400-450 MW of continuous power—equivalent to the electricity needs of a small city.
This energy intensity creates several vulnerabilities:
- Price sensitivity: Even small increases in electricity costs can dramatically impact profitability
- Supply continuity: Smelters require uninterrupted power, as even brief outages can cause the molten aluminium to solidify in the pots, resulting in extensive damage
- Long-term commitments: Smelters typically need decade-long power agreements to justify their massive capital investments
In Mozambique specifically, these challenges are compounded by regional power infrastructure limitations and competing demands for the hydroelectric resources that have traditionally powered the Mozal operation.
How Does This Fit into South32's Broader Strategy?
The Mozal decision aligns with South32's ongoing portfolio optimization strategy. Since demerging from BHP in 2015, South32 has consistently reviewed its global asset portfolio, focusing investments on operations that deliver sustainable returns across market cycles.
The $372 million impairment, while significant, represents a strategic decision to avoid continued investment in an asset facing fundamental cost challenges. South32 has increasingly pivoted toward what it terms "future-facing commodities" that support global decarbonisation in mining efforts.
This strategic reorientation has several implications for the company's aluminium business:
- Reduced overall aluminium production capacity within South32's portfolio
- Potential reallocation of capital to other commodities or regions with more favorable operating conditions
- Financial restructuring to accommodate the impairment while maintaining shareholder returns
The outlook for South32's Mozal smelter also reflects the company's commitment to disciplined capital allocation, prioritizing operations where sustainable competitive advantages exist.
What is the Regional Impact of the Mozal Closure?
The Mozal smelter has been a cornerstone of Mozambique's industrial economy since it began operations in 2000. As one of the largest industrial operations in the country, its transition to care and maintenance will create ripple effects throughout the local economy.
While specific employment figures haven't been disclosed in the announcement, aluminium smelters typically employ hundreds of direct workers and support thousands more indirect jobs through suppliers, contractors, and service providers. The phased reduction in operations will likely impact this employment ecosystem significantly.
Beyond employment, the economic implications include:
- Reduced foreign exchange earnings for Mozambique, as aluminium has been a key export
- Decreased tax revenue for the government
- Potential impacts on port activity and transportation services
- Diminished local procurement of goods and services
From a supply chain perspective, the reduction of Mozal's output may create regional aluminium supply constraints for downstream industries, potentially requiring increased imports or creating opportunities for other producers to fill the gap.
What Options Remain for the Mozal Smelter?
While South32 is preparing for care and maintenance, several scenarios could still emerge before or after the March 2026 transition:
Potential Future Scenarios
- Renewed power negotiations: Changes in regional electricity supply dynamics could reopen discussions with power providers
- Alternative ownership structures: Industry consolidation strategies such as joint ventures might bring new perspectives or capabilities
- Technological adaptations: Innovations reducing energy dependency could improve the smelter's economics, though significant breakthroughs would be needed
The care and maintenance approach preserves optionality by maintaining critical infrastructure in a state that allows for potential restart. This strategy involves:
- Protecting key equipment from deterioration
- Maintaining environmental management systems
- Retaining a skeleton staff for security and maintenance
- Preserving restart capability, though with significant lead time and capital requirements
Industry precedent suggests that aluminium smelters in care and maintenance face challenging restart economics, with successful revivals typically requiring substantial changes to underlying cost structures or market conditions.
How Does This Compare to Other Aluminium Smelter Closures?
The Mozal situation mirrors challenges faced by aluminium producers globally. In recent years, several major smelters have undergone similar transitions in response to energy cost pressures and market dynamics.
The global context for aluminium production has been characterized by:
- Shifting production centers toward regions with low-cost electricity, particularly the Middle East and China
- Pressure on older facilities in regions with rising energy costs
- Increasing focus on low-carbon aluminium production as customers prioritize sustainability
Notable comparable situations include:
- Several European smelters curtailing production during the 2021-2022 energy crisis
- North American facilities seeking special electricity arrangements to maintain viability
- Australian aluminium smelters negotiating government support packages to address energy challenges
The aluminium industry has demonstrated both resilience and vulnerability in the face of these challenges. While some smelters have successfully navigated energy transitions, others have faced permanent closure despite initial care and maintenance plans.
Future Outlook for Mozambique's Aluminium Industry
Despite the challenges facing Mozal, Mozambique retains significant potential in the aluminium value chain. The country's substantial hydroelectric resources could still support electrification powering Australia's mines and other energy-intensive industries if appropriate infrastructure investments and policy frameworks are developed.
The transition period before March 2026 provides an opportunity for stakeholders to explore alternative arrangements that might preserve some or all of the smelter's operations. These could include:
- Innovative power arrangements with regional suppliers
- Integration with renewable energy developments
- Strategic partnerships with downstream aluminium consumers
- Value-added processing to capture more of the aluminium value chain locally
While the immediate outlook appears challenging, the long-term future of aluminium production in Mozambique will depend on collaborative approaches to addressing the fundamental energy challenges that precipitated the current situation.
FAQs About the Mozal Smelter Situation
When will the Mozal smelter stop production?
South32 plans to continue operations until March 2026, after which the facility will be placed on care and maintenance if no solution to the electricity supply issue is found.
What happens to the workforce at Mozal?
While specific workforce impacts haven't been fully detailed, the announcement mentions standing down contractors starting August 2025, suggesting significant employment changes will occur during the transition period.
Could the smelter restart in the future?
Technically, yes. Care and maintenance preserves the possibility of future operations if electricity supply issues are resolved or market conditions change significantly. However, historical precedent suggests aluminium smelter restarts face significant economic hurdles.
How significant is this impairment to South32's overall business?
The $372 million impairment is substantial but represents just one asset within South32's diversified mining portfolio. The company maintains operations across multiple commodities and geographies.
What percentage of South32's aluminium production comes from Mozal?
Mozal has been a significant aluminium producer for South32, with its 355,000 tonnes representing an important portion of the company's aluminium business. The exact percentage contribution to South32's overall portfolio would require reference to the company's latest production reports.
What are the environmental implications of placing the smelter on care and maintenance?
While the announcement doesn't detail specific environmental management plans, aluminium smelters typically require ongoing environmental monitoring and management even during care and maintenance to address residual materials and prevent contamination.
Environmental and Sustainability Considerations
The Mozal situation also highlights the broader challenges and opportunities facing the global aluminium industry as it navigates increasing sustainability pressures. While aluminium is essential for lightweight transportation, renewable energy infrastructure, and sustainable packaging, its production remains energy-intensive.
The industry faces several key environmental challenges:
- High carbon footprint when powered by fossil fuels
- Significant waste management requirements for bauxite residue (red mud)
- Water management considerations
- Land rehabilitation needs
However, aluminium also offers substantial sustainability benefits:
- Infinitely recyclable with minimal quality loss
- Enables lightweight transportation reducing fuel consumption
- Critical material for renewable energy infrastructure
- Durable and long-lasting in many applications
The transition at Mozal underscores the need for the aluminium industry to continue developing more energy-efficient production technologies and integrating with renewable energy sources to maintain competitiveness in an increasingly carbon-conscious global economy. As industry evolution trends continue to shape the mining sector, the outlook for South32's Mozal smelter remains a significant case study in industrial adaptation.
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