- Mozal to halt operations next month as raw material shortages and power constraints bite.
- More than 4,000 jobs at risk in Mozambique’s manufacturing sector.
- By contrast, Eskom’s discounted power deal with South32’s Hillside smelter in South Africa to cost the utility billions.
Mining group South32 has confirmed that its Mozal aluminium smelter in Mozambique will be placed on care and maintenance next month, citing critical shortages of key inputs and ongoing uncertainty over long term power supply.
Mozambique’s mineral resources and energy minister Estevao Pale told Reuters the government was doing everything required to keep the smelter open. However, industry sources indicated that the facility’s fate had effectively been sealed.
Speaking during an interim earnings call last week, South32 chief executive Graham Kerr said the operation was running out of essential materials including pitch and coke. Even if a new electricity contract were secured immediately, supply could not be delivered in time to sustain production.
South32 reported underlying earnings of US$ 435 million for the six months to 31 December, ahead of analyst expectations and lifting its share price by 5%. The group impaired its Mozal investment by US$372 million last year after failing to secure affordable power beyond March 2026. Prolonged drought has constrained output from Hidroeléctrica de Cahora Bassa, while negotiations with Eskom for backup electricity did not yield a viable agreement.
The potential closure places more than 4,000 direct and indirect jobs at risk, representing roughly one third of Mozambique’s manufacturing employment base. Alumina previously processed at Mozal is expected to be redirected to facilities in the Middle East.
Kerr indicated that South32 would not proceed to full closure until there is clarity on the future of the Cahora Bassa power contract. He noted that once hydropower generation stabilises, surplus electricity could improve Mozal’s long term viability. However, he cautioned that restarting a smelter after several years is technically complex and significantly more challenging than restarting a mine.
Hillside power agreement under scrutiny
In contrast to Mozal’s power uncertainty, South32’s Hillside smelter in Richards Bay, South Africa continues to operate under a long term electricity pricing agreement with Eskom. Hillside is the largest aluminium smelter in the southern hemisphere and consumes close to six percent of Eskom’s total electricity output.
The agreement, concluded in 2021, was initially kept confidential by Eskom, which argued that disclosure could undermine its position in future tariff negotiations. However, following engagement between the information regulator and civil society organisation Open Secrets, the full unredacted agreement was released.
Analysis by Meridian Economics indicates that the pricing structure provides Hillside with substantial discounts compared to the standard Megaflex tariff applied to large industrial customers. For the current financial year alone, the discount is estimated at approximately R10 billion, with cumulative savings of about R25 billion since inception. Over the ten year term, the total revenue forgone by Eskom could reach R92 billion.
By comparison, electricity minister Kgosientsho Ramokgopa recently estimated that the average annual electricity cost for low income households is R14,400. The current annual discount to South32 could therefore cover electricity costs for nearly 700,000 households.
The agreement caps annual tariff increases for Hillside at producer price inflation plus 1.25 percent, offering protection from the higher increases approved by the National Energy Regulator of South Africa, which recently sanctioned a 24.3 percent rise over three years.
While the contract includes an interruption clause allowing Eskom to curtail supply for up to 104 hours per year, independent analysis suggests that alternative grid balancing solutions such as battery storage could be deployed at significantly lower cost than the annual discount afforded to the smelter.
The contrasting fortunes of Mozal and Hillside underscore the strategic importance of long term power pricing frameworks in sustaining Africa’s energy intensive industrial base, particularly as utilities balance alternative energy sources, financial sustainability with industrial development objectives.
Author: Bryan Groenendaal
