South32's Mozal Aluminium: Facing an Uncertain Future

South32 has announced plans to place its Mozal Aluminium operation in Mozambique on care and maintenance starting March 2026, primarily due to unresolved power supply challenges. This decision marks a significant development for one of Mozambique's largest industrial operations, with far-reaching implications for the country's economy and the regional aluminum market. The South32 Mozal Aluminium care and maintenance plan reflects growing challenges in maintaining energy-intensive operations in regions with power constraints.

The Power Supply Crisis Threatening Mozal's Operations

The future of Mozal Aluminium hangs in the balance as its existing power agreement approaches expiration in March 2026. Despite extensive negotiations dating back to 2019, South32 has been unable to secure guarantees for continued electricity supply beyond this critical deadline.

Current Power Agreement Expiration

The clock is ticking for Mozal Aluminium as its power agreement with Hidroeléctrica de Cahora Bassa (HCB) will terminate in March 2026. This agreement has been fundamental to the smelter's operations, providing the massive amounts of electricity required for aluminum production. The impending expiration creates significant uncertainty for the facility's long-term viability.

Aluminum smelting requires consistent, reliable power supply to maintain operations efficiently. Any interruption can cause substantial damage to equipment and result in significant financial losses, making a secure power agreement essential rather than optional.

Failed Negotiations with Key Stakeholders

South32 has been engaged in ongoing discussions with multiple parties to resolve the power supply issue:

• The Government of the Republic of Mozambique
• Hidroeléctrica de Cahora Bassa (HCB), the primary power generator
• Eskom, South Africa's utility company designated as backup supplier

These negotiations, which reportedly began as early as 2019, have yet to yield a viable solution that would ensure "sufficient" and "affordable" power for the smelter's energy-intensive operations. The complexity of these negotiations reflects the challenging intersection of commercial interests, national energy policies, and regional power dynamics.

Industry analysts note that power negotiations for aluminum smelters often involve complex long-term contracts that must balance the needs of both the smelter operator and the power supplier. In Mozambique's case, this is further complicated by regional energy constraints and competing demands for HCB's hydroelectric power.

Immediate Operational Impact and Production Reduction

As a direct consequence of the uncertain future, South32 has implemented several immediate operational changes that will significantly impact production capacity.

Curtailment of Essential Maintenance

South32 has announced several operational adjustments in preparation for the potential closure:

• Cessation of pot relining activities starting August 2025
• Standing down of associated contractors
• Reduction in capital investments at the facility

Pot relining is a critical maintenance procedure in aluminum smelting. Aluminum is produced in large cells called "pots," which have limited lifespans and require regular relining to maintain operational efficiency. By halting this essential maintenance, South32 is effectively beginning a gradual wind-down of operations.

Projected Production Decline

The operational changes will result in a significant reduction in Mozal's production capacity:

• Expected output of approximately 240,000 tonnes for fiscal year 2026
• Reduction in operational pots due to halted maintenance activities
• Operations only continuing until the March 2026 deadline

This production decline represents a substantial reduction from Mozal's historical output levels. The facility has been a significant contributor to Mozambique's export economy, and this decline will likely have ripple effects throughout the local and national economy.

Technical Note: In aluminum smelting, "pots" are large electrolytic cells where alumina is dissolved in molten cryolite and electrolyzed to produce pure aluminum. Each pot typically requires relining every 5-7 years, making pot relining a continuous process in large smelters. Halting this maintenance accelerates the inevitable decline in operational capacity.

Financial Implications of the Decision

The decision to place Mozal on care and maintenance has immediate financial consequences for South32, reflecting the company's assessment of the facility's diminished future economic value.

Substantial Impairment Charge

South32 has completed a carrying value assessment of Mozal Aluminium, resulting in:

• A total impairment charge of $372 million for fiscal year 2025
• Breakdown of the impairment:
  • $339 million in property, plant and equipment
  • $7 million in intangible assets
  • $26 million in raw materials and consumables
• Reduction of Mozal's carrying value to just $68 million

This significant write-down illustrates the severity of the situation and South32's pessimistic outlook regarding Mozal's future operational viability without a secure power agreement. Furthermore, aluminium scrap pricing trends could further complicate the economic equation for the facility's future.

Accounting Treatment

The company has indicated that this impairment will be excluded from FY25 underlying earnings, in accordance with South32's accounting policies. This treatment is typical for major asset impairments that are considered one-time, non-recurring events.

Financial analysts note that such a substantial impairment suggests South32 sees limited prospects for resolving the power supply issues before the 2026 deadline. The reduced carrying value of $68 million—a fraction of the original investment—reflects the diminished future economic benefits expected from the facility.

What Makes Mozal Aluminium Strategically Important?

Despite the current challenges, Mozal Aluminium has been a cornerstone of Mozambique's industrial development and holds significant strategic importance for the country and region.

Economic Significance to Mozambique

Mozal Aluminium represents a major industrial investment in Mozambique:

• Located just 20km west of Maputo, the country's capital
• Backed by a substantial $2 billion investment
• Played a pivotal role in Mozambique's economic recovery following a period of instability

The smelter has been one of Mozambique's largest foreign investments and has served as a flagship project demonstrating the country's potential for industrial development. Beyond direct economic contributions, Mozal has helped establish industrial infrastructure and supply chains that benefit other sectors of the economy.

Ownership Structure

The facility operates under a multi-stakeholder ownership model:

• South32 holds a majority stake of 63.7%
• Industrial Development Corporation of South Africa owns 32.4%
• Government of the Republic of Mozambique maintains a 3.9% share

This ownership structure reflects the regional importance of the project, with significant South African participation alongside Mozambican government interests. The multi-stakeholder model was designed to align incentives among regional partners and foster economic integration.

The Complexities of Power Supply for Aluminum Production

Understanding the power challenges facing Mozal requires recognizing the unique energy requirements of aluminum production and the regional power dynamics at play.

Energy-Intensive Process

Aluminum smelting is inherently energy-intensive, making reliable and affordable power essential for operational viability. The process requires:

• Continuous electricity supply at stable rates
• Competitive energy pricing to maintain cost-effectiveness
• Long-term supply agreements to justify capital investments

Aluminum production is among the most electricity-intensive industrial processes, typically consuming between 13,000 and 17,000 kilowatt-hours (kWh) per tonne of aluminum produced. For a facility like Mozal with an annual capacity of approximately 240,000 tonnes, this translates to massive power requirements that few utilities can reliably supply. In fact, this process has prompted many mining operations to explore renewable energy solutions to address their substantial energy needs.

Current Supply Arrangement

Under the existing agreement:

• HCB serves as the primary power supplier from its Cahora Bassa hydroelectric dam
• Eskom is designated to provide backup power when HCB cannot meet requirements
• This arrangement will terminate in March 2026

The dual-supplier model was designed to ensure reliability, but changing regional power dynamics have complicated renewal negotiations. Both Mozambique and South Africa face growing domestic electricity demand, putting pressure on power exports to industrial users like Mozal.

What Are the Broader Implications of Mozal's Potential Closure?

The potential closure of Mozal Aluminium extends beyond the facility itself, with significant implications for Mozambique's economy and the regional aluminum market.

Economic Impact on Mozambique

The transition to care and maintenance will likely have considerable consequences for Mozambique's economy on multiple levels.

Employment and Local Economy

The potential closure threatens:

• Direct employment at the facility, which historically has employed over 1,000 workers
• Indirect jobs through the supply chain, estimated at several thousand positions
• Local businesses dependent on Mozal's operations and employee spending
• Tax revenue for the Mozambican government, impacting public finances

Aluminum smelters create substantial employment multiplier effects through their supply chains and local spending. The International Aluminium Institute estimates that each direct job in primary aluminum production supports approximately 3-4 additional jobs in the broader economy.

Industrial Development Signal

The potential closure sends concerning signals about:

• Mozambique's industrial development trajectory
• The country's ability to maintain large-scale manufacturing operations
• Future foreign direct investment prospects, particularly in energy-intensive industries

As one of Mozambique's flagship industrial projects, Mozal's transition to care and maintenance may raise questions about the country's industrial competitiveness and ability to support energy-intensive industries. This could affect investor confidence in similar large-scale projects.

Regional Aluminum Supply Considerations

The reduction and potential cessation of Mozal's production will affect regional aluminum markets in several ways.

Market Supply Dynamics

The changes at Mozal will impact:

• Regional aluminum supply chains, potentially creating shortages for certain buyers
• Export patterns from Southern Africa, reducing foreign exchange earnings
• Potential price implications for aluminum in regional markets

Mozal has been a significant producer in the Southern African region, and its output reduction will likely require regional buyers to seek alternative sources, potentially at higher costs due to increased transportation expenses. According to a recent analysis by South32, the facility's transition will significantly impact the regional supply balance.

What Options Remain for Mozal's Future?

While the current trajectory points toward care and maintenance, several potential scenarios could unfold for Mozal Aluminium beyond March 2026.

Potential Scenarios Beyond March 2026

Complete Closure

If no power solution is found, the facility could face:

• Permanent shutdown of operations
• Asset liquidation or repurposing
• Site remediation requirements and associated costs
• Loss of industrial capacity and expertise

Complete closure would represent a significant loss for Mozambique's industrial sector and would likely require substantial resources for proper decommissioning and environmental remediation. In such scenarios, companies must follow mine reclamation insights and best practices to ensure minimal environmental impact.

Revival Through New Power Arrangements

The operation could potentially resume if:

• A new power agreement is secured after March 2026
• Alternative energy solutions become viable, such as dedicated renewable energy projects
• Economic conditions improve sufficiently to justify restarting

Restarting an aluminum smelter after shutdown is technically challenging and capital-intensive. Industry experts note that the costs of restarting often approach those of building a new facility, particularly if the shutdown period extends beyond several months.

Alternative Ownership Models

Other possibilities might include:

• Increased government participation to preserve strategic industrial capacity
• New investment partners with different power supply options
• Restructured operational model focusing on downstream value-added products

A change in ownership structure could potentially unlock new approaches to the power supply challenge, particularly if government stakeholders take a more direct role in ensuring power availability.

Understanding Care and Maintenance in the Mining and Metals Industry

Care and maintenance is a status where operations are temporarily suspended but facilities are maintained in a condition that would allow for potential future restart. This typically involves minimal staffing, ongoing environmental monitoring, and preservation of key assets.

For aluminum smelters, care and maintenance presents particular challenges due to the nature of the production process. Aluminum smelting pots operate continuously at high temperatures, and a complete shutdown requires careful management to minimize damage to equipment. Even with optimal procedures, restarting an idle smelter requires significant capital investment and technical expertise.

Could Renewable Energy Solutions Address Mozal's Power Challenges?

While renewable energy could potentially form part of a solution, aluminum smelting requires consistent, high-volume power that current renewable technologies might struggle to provide cost-effectively without substantial storage capabilities or baseload backup.

Aluminum producers globally are increasingly exploring renewable energy options, but these typically require innovative financing structures, energy storage solutions, and hybrid approaches that combine renewables with conventional power sources. For Mozal, any renewable solution would need to address both the volume and reliability requirements of aluminum smelting while remaining cost-competitive. However, the mining sector's electrification efforts could provide valuable lessons for aluminum producers facing similar energy transitions.

Disclaimer: This article contains analysis of potential future scenarios and market impacts that are inherently uncertain. The content is provided for informational purposes only and should not be construed as investment advice or definitive predictions of outcomes.

Workforce Implications During Care and Maintenance

Typically, care and maintenance status results in significant workforce reductions, with only essential personnel retained to maintain the facility. South32 has not yet provided specific details about employment impacts at Mozal, but industry precedents suggest:

• Retention of a core team for security, environmental monitoring, and asset preservation
• Potential redeployment opportunities for some employees within South32's global operations
• Phased reduction in workforce as the March 2026 deadline approaches
• Collaboration with government agencies on transition programs for affected workers

The social impact of workforce reductions will likely be significant, particularly in communities where Mozal represents a major employer. Historical cases suggest that effective transition planning, including retraining programs and economic diversification initiatives, can help mitigate these impacts.

Conclusion

South32's decision to place Mozal Aluminium on care and maintenance represents a significant turning point for one of Mozambique's largest industrial operations. The unresolved power supply challenges highlight the complex interplay between industrial development, energy security, and economic sustainability in developing economies.

While the current trajectory points toward suspension of operations in March 2026, the situation remains fluid. Stakeholders including South32, the Mozambican government, and regional power suppliers still have opportunities to find solutions that could preserve this strategically important industrial asset.

For Mozambique, the potential loss of Mozal's productive capacity presents both challenges and opportunities—challenges in terms of economic impact and employment, but also opportunities to reassess industrial development strategies and energy policies to ensure sustainable growth in the future. This case illustrates broader industry evolution trends that are reshaping mining and metals operations worldwide.

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