South32 CEO Graham Kerr says he is past the point of negotiating for a new electricity supply plan in Mozambique as the group prepares to wind down its Mozal Aluminium smelter by mid-March.
The diversified miner announced in August it would place Mozal on care and maintenance thanks to the unaffordability of Eskom’s power and retrench its about 5,000-strong workforce, placing thousands more in indirect jobs at risk as a result.
The decision came after failed negotiations last year with Eskom, the Mozambican government and Mozambique’s leading hydropower group, Hidroeléctrica de Cahora Bassa, over a new power purchase agreement for 2026.
“We have been clear that we’re past the point of any new power supply agreement,” Kerr said in an interview with Business Day. “We no longer have the raw materials necessary to keep the plant running; we stopped buying them in December.
“Smelters are not like mines; you cannot stop and start them. It takes a huge amount of money to restart operations.”
Heavy burden
The rising cost of Eskom’s electricity has placed a heavy burden on smelters across Southern Africa in recent years, leading to several operations in South Africa being idled.
In December last year, the Glencore-Merafe chrome venture issued thousands of retrenchment notices at two smelters in the North West. In the preceding four years, it cut 1,800 jobs as it closed 10 of its 22 furnaces due to unsustainable electricity costs.
Last month, however, South Africa’s national energy regulator (Nersa) granted Samancor and the Glencore-Merafe venture a 35% tariff relief in a desperate bid to save the smelters and thousands of jobs.
“I would argue that even at Mozal, we could’ve had a contract that would have been affordable to Eskom and above their cost of production,” Kerr said.
“[But] the offer they [Eskom] put on the table [for Mozal] was about $100/MWh, which is more than two times that of any other smelter in the West.”
South32 is among the biggest consumers of Eskom’s power, and Kerr said this standing gives him confidence about the group’s Hillside smelter in Richards Bay.
“If you took Mozal and Hillside out of Eskom, you would’ve lost your two biggest customers,” said Kerr. “We’ve had a good open dialogue with Eskom over many years and worked closely together.
“There’s about 4,000-5,000 jobs that will be affected by the Mozal closure, plus a knock-on effect of another 20,000. But the advantage we have in Hillside is that it is South African jobs [on the line],” he said.
“It is also a bigger smelter [than Mozal], and it sells 30% of its product downstream to manufacturers like Hulamin. So, there would be a much bigger job impact in South Africa than there is in Mozambique.”
Hillside’s big secret
South32’s Hillside smelter has received a big but confidential discount on its electricity bill from Eskom over the past decade. Open Secrets reported that the deal has caused savings of about R92bn over 10 years.
Last year Kerr told Business Day it would be “catastrophic” for Eskom if it “took Hillside out of the system”.
In publishing its financial results for the six months to end-December on Thursday, South32 reported headline earnings at $405m, up 5% from the previous first half. Revenue was 3% lower at $2.81bn.
Still, it declared an interim dividend of 3.9c a share, up 15% year on year, citing a “consistent operating performance and higher base and precious metals prices”.
Mozal is Mozambique’s largest industrial employer, contributing about 30% of the country’s manufacturing output and just more than 3% to GDP.
A $372m impairment, which will reflect in Mozal’s next annual results, will reduce the company’s carrying value to $68m.
Source: Business Day South Africa
