What Are the Power Supply Challenges Facing South32's Mozal Aluminium Smelter?
South32's Mozal aluminium smelter in Mozambique faces critical uncertainty about its future operations due to ongoing power supply challenges. The Australian mining company has been unable to secure affordable and reliable electricity beyond March 2026, despite negotiations that began in 2019 with its primary supplier, Hidroeléctrica de Cahora Bassa (HCB).
The complex power supply situation is further complicated by drought conditions threatening HCB's hydroelectric generation capacity. With water levels potentially decreasing, the dam's ability to generate sufficient electricity for the energy-intensive smelter operations could be significantly compromised.
For South32, which holds a controlling 63.7% stake in Mozal, these challenges aren't merely operational concerns but existential threats to a facility that produced 314,000 tonnes of aluminium in the 2024 financial year. Similar energy transition challenges are facing resource companies worldwide.
"The uncertain power situation has forced South32 to place its production guidance for the 2026 financial year under review, signaling serious concerns about operational continuity." – Mining Technology, 2025
Why Is Power Supply Critical for Aluminium Smelting Operations?
The Energy-Intensive Nature of Aluminium Production
Aluminium production is among the most electricity-intensive industrial processes in the world. The smelting process requires enormous amounts of continuous electrical current to separate aluminium from oxygen in alumina through electrolysis. Electricity typically constitutes 30-40% of total aluminium production costs, making power supply agreements fundamental to operational viability.
The Hall-Héroult process, which forms the basis of modern aluminium production, operates at temperatures around 950°C (1,740°F). These electrolytic cells must maintain these extreme temperatures constantly, making reliable power absolutely non-negotiable.
The Catastrophic Impact of Power Interruptions
For aluminium smelters like Mozal, power interruptions aren't merely inconvenient—they're potentially catastrophic. When electricity supply fails, the molten aluminium inside the electrolytic cells (known as "pots") begins to cool and solidify.
This phenomenon, called a "pot freeze," can cause irreversible damage to the specialized equipment. The solidified aluminium must be physically removed, and the pots must be relined and restarted—a process that can cost millions of dollars per line and take weeks or months to complete.
Industry Insight: Even a power interruption of just a few hours can lead to damages requiring months of repairs and millions in recovery costs.
Mozal's Current Power Arrangement
Mozal currently operates under a dual-supply agreement that provides essential redundancy. HCB serves as the primary electricity provider, while South African utility Eskom functions as the designated backup when HCB cannot meet demand. This arrangement has been crucial for maintaining the operational stability necessary for aluminium production.
What Specific Power Issues Is South32 Facing at Mozal?
Stalemated Power Agreement Negotiations
South32 has been locked in negotiations with HCB since 2019 to renew the power tariff agreement that expires in March 2026. Despite years of discussions, the parties have not reached a consensus on terms that would ensure competitive electricity prices beyond this critical date.
The protracted nature of these negotiations—spanning more than five years without resolution—suggests fundamental disagreements about pricing, capacity guarantees, or other contractual terms critical to the smelter's future viability. According to Reuters reporting, this impasse may lead to significant impairment charges.
Climate Vulnerability and Hydroelectric Reliability
HCB's power generation depends on water levels at the Cahora Bassa Dam on the Zambezi River. South32 has specifically highlighted that ongoing drought conditions could significantly impact HCB's hydroelectric generation capacity. This climate vulnerability introduces another layer of uncertainty to Mozal's power supply equation.
Regional climate patterns have already affected hydroelectric operations throughout Southern Africa, with drought conditions reducing output at various facilities by up to 15% in recent years.
Production Planning Under Threat
The combined effect of these power supply uncertainties has forced South32 to place its production guidance for the 2026 financial year under review. This unusual step in forward planning indicates the severity of the situation and suggests the company is preparing contingency scenarios that may include production curtailment.
What Is the Strategic Importance of the Mozal Smelter?
A Cornerstone Investment in Mozambique's Economy
Located 20km west of Maputo, Mozal Aluminium represents the largest private investment in Mozambique with an initial investment of $2 billion. Since its establishment, the smelter has been a cornerstone of the country's industrial development and export economy.
The smelter's significance extends far beyond its direct production value. As a flagship industrial project, it has helped establish Mozambique as a destination for large-scale foreign direct investment and contributed to developing the country's infrastructure and industrial capabilities.
Complex Multinational Ownership Structure
South32 holds a controlling 63.7% stake in Mozal Aluminium, having increased its ownership by 16.6% in May 2022. The remaining shares are distributed between the Industrial Development Corporation of South Africa (32.4%) and the Government of Mozambique (3.9% through preference shares).
This multinational ownership structure reflects the regional importance of the facility and creates a complex stakeholder environment for major operational decisions.
Catalyst for Downstream Industrial Development
Mozal has become a catalyst for industrial development beyond its own operations. The smelter supports Mozambique's downstream aluminium industry by supplying liquid metal to Midal Cables, which manufactures electrical cables and related products for both domestic and export markets.
This vertical integration creates additional economic value and employment opportunities within Mozambique, multiplying the smelter's economic impact. Any disruption to Mozal's operations would therefore have cascading effects throughout this industrial ecosystem, impacting potential mineral beneficiation opportunities in the region.
How Do Power Supply Challenges Impact Aluminium Production?
The Critical Threshold for Operational Viability
Aluminium smelters operate on very narrow margins for error when it comes to power supply. The electrolytic cells require uninterrupted power to maintain operational temperatures around 950°C. Even brief interruptions can initiate solidification, leading to the dreaded "pot freeze" scenario.
For Mozal, which operates hundreds of electrolytic cells, the financial implications of major power disruptions could run into the hundreds of millions of dollars when accounting for equipment damage, repair costs, and lost production.
The Economics of Electricity in Aluminium Production
With electricity representing 30-40% of production costs, power pricing directly determines competitive positioning in the global market. Aluminium is traded as a commodity on international markets, meaning producers cannot easily pass increased costs to customers.
Mozambique's relatively affordable hydroelectric power has historically been a competitive advantage for Mozal. Without securing comparable rates beyond 2026, the smelter could find itself at a severe disadvantage against producers with access to lower-cost electricity.
The Impossible Restart Challenge
Unlike many industrial processes that can be paused and restarted with relative ease, aluminium smelting faces unique challenges after power interruptions. Once electrolytic cells solidify, the restart process is extraordinarily complex:
- Mechanical intervention – Solidified aluminium must be physically removed
- Cell assessment – Determining extent of damage to specialized materials
- Relining – Replacing damaged components with heat-resistant materials
- Preheating – Gradual temperature increase to prevent thermal shock
- Electrolyte addition – Reintroducing the chemical bath necessary for production
- Current reintroduction – Carefully restarting the electrolytic process
This process can take weeks or months per production line and cost millions of dollars, making even temporary power interruptions potentially catastrophic for overall business viability.
What Options Are Available to Address the Power Supply Issues?
Diversifying Power Sources
One potential solution is diversifying Mozal's power sources beyond the current HCB-Eskom arrangement. Options could include:
- Negotiating with alternative regional suppliers in the Southern African Power Pool
- Establishing dedicated power generation facilities specifically for the smelter
- Developing renewable energy solutions through solar or wind installations to reduce dependence on hydroelectric power
While aluminium smelters require baseload power, a hybrid approach combining multiple sources could provide greater resilience against both contractual and climate-related risks.
Energy Efficiency Investments
While aluminium smelting will always be energy-intensive, technological improvements can reduce consumption margins. Modern smelters have achieved energy efficiencies up to 20% better than older facilities through:
- Advanced pot designs with improved current efficiency
- Heat recovery systems that capture and reuse thermal energy
- Process control optimization using AI and machine learning
- Reduced current density operations during strategic periods
Though requiring capital investment, these improvements could partially mitigate electricity cost increases if favorable power contracts cannot be secured.
Strategic Production Planning
If power supply challenges cannot be fully resolved, Mozal could explore strategic production adjustments:
- Seasonal production variation aligning with hydroelectric generation peaks
- Focus on higher-value aluminium products to improve margins per kilowatt-hour
- Partial operation maintaining some production lines while idling others
- Stockpiling during favorable conditions to maintain market presence during curtailments
While not ideal, these approaches might preserve some operational viability even under suboptimal power conditions.
What Are the Broader Implications for Mozambique's Industrial Development?
Economic Ripple Effects
Any reduction in Mozal's operations would have far-reaching implications for Mozambique's economy:
- Export revenue decline – Aluminium represents a significant portion of Mozambique's export earnings
- Job losses – Both direct employment at Mozal and indirect jobs in supporting industries
- Tax revenue reduction – Diminished corporate tax contributions to national budgets
- Downstream industry impact – Companies like Midal Cables facing supply disruptions
The $2 billion investment has generated economic multiplier effects throughout the region, making any operational downsizing a multi-layered economic challenge for Mozambique.
Regional Power Dynamics
The situation highlights the complex regional power dynamics in Southern Africa, where cross-border electricity trading and resource sharing are critical for industrial development. Mozambique's position as both an electricity producer through HCB and consumer through facilities like Mozal creates intricate policy considerations.
How Mozambique manages this high-profile power supply challenge could influence regional energy integration efforts and cross-border investment patterns throughout Southern Africa.
Long-term Investment Climate Signals
How Mozambique navigates this situation will send important signals to international investors considering future projects in the country:
- Contract stability perception – Whether long-term agreements are honored and renegotiated in good faith
- Infrastructure reliability – The country's ability to provide essential services to major industrial operations
- Policy predictability – Whether consistent regulatory frameworks support industrial development
- Climate resilience planning – How the country addresses climate vulnerabilities affecting key infrastructure
These signals will influence future foreign investment decisions, particularly for energy-intensive industries considering Mozambique as a potential location.
FAQ: South32's Mozal Aluminium Smelter Power Supply Challenges
When will Mozal's current power agreement expire?
The current power tariff agreement with Hidroeléctrica de Cahora Bassa (HCB) is set to expire in March 2026. Despite negotiations since 2019, South32 and HCB have not reached a new agreement that would ensure affordable electricity pricing beyond this date.
How much aluminium does Mozal produce annually?
Mozal produced 314,000 tonnes of aluminium in the 2024 financial year, making it a significant contributor to Mozambique's industrial output and export economy. This production level requires consistent, reliable power supply to maintain.
Who owns the Mozal aluminium smelter?
The ownership structure includes:
- South32: 63.7% (controlling stake)
- Industrial Development Corporation of South Africa: 32.4%
- Government of Mozambique: 3.9% (through preference shares)
South32 increased its stake by 16.6% in May 2022, demonstrating its strategic commitment to the operation before the current power challenges emerged.
What is the backup power arrangement for Mozal?
South African utility Eskom is designated to supply power to Mozal when the primary provider, HCB, cannot meet the smelter's electricity requirements. This redundancy is critical for operational continuity but adds complexity to the power supply chain.
What environmental factors are affecting power supply to Mozal?
Drought conditions in the region could impact HCB's hydroelectric power generation capacity at the Cahora Bassa Dam. Reduced water levels would diminish HCB's ability to produce sufficient electricity, potentially compromising the smelter's operations even if contractual issues are resolved.
Key Considerations for the Future
Balancing National Interests and Commercial Viability
Mozambique faces the challenge of balancing national economic interests with the commercial realities of international commodity production. While securing higher electricity prices might benefit HCB and government revenues in the short term, the potential loss of Mozal's economic contribution could outweigh these gains.
Finding a middle ground that ensures both HCB's financial sustainability and Mozal's continued operation represents a critical policy challenge for Mozambican authorities.
Climate Adaptation Strategies
Both Mozal and HCB will need to develop robust climate adaptation strategies as drought conditions become more frequent in Southern Africa. For HCB, this might include:
- Improved water management systems
- Additional storage capacity for dry season operation
- Diversification of generation technologies
- Enhanced forecasting capabilities
For Mozal, adapting to climate-related power vulnerabilities could involve:
- On-site energy storage systems
- Backup generation capacity
- Operational flexibility improvements
- Energy efficiency investments
The growing emphasis on electrification in mining operations worldwide highlights the importance of reliable power supply for industrial facilities like Mozal.
The Global Aluminium Market Context
These local challenges play out against a backdrop of shifting global aluminium markets. China has dramatically increased production capacity, while sustainability pressures are pushing the industry toward lower-carbon production methods.
Mozal's future viability depends not only on securing affordable power but also on positioning within this evolving global market. The smelter's relatively clean hydroelectric power source could become an increasingly valuable competitive advantage as carbon regulations tighten globally, aligning with broader mining sustainability transformation trends in the industry.
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