South32 prepares to shutter Mozal aluminium smelter in Mozambique as it struggles to secure power deal

South32 will start standing down contractors and prepare to shutter its Mozal aluminium plant in Mozambique, saying there is little chance a deal can be reached to secure affordable power to run the operations.

The Perth-headquartered mixed metals miner revealed a month ago it could be forced to pull the plug because years of talks with the southern African nation’s government to keep the smelter running beyond March 2026 had failed to deliver an agreement.

The majority of electricity for Mozal has been generated in Mozambique by Hidroeléctrica de Cahora Bassa, a hydro-electric power generator owned by the government.

Under the agreement, electricity from Eskom is supplied to Mozal when HCB is unable to meet all of the operation’s electricity requirements.

S32 noted in its March-quarter report that there are currently no viable alternative suppliers of renewable energy at the required scale.

In an update to the market on Thursday, the miner said talks continued but “these engagements do not provide confidence that Mozal will secure sufficient and affordable electricity beyond March 2026”.

Shares in the $13 billion miner had plunged as much as 5.7 per cent shortly before the close to $2.88, making it the day’s biggest loser on the S&P/ASX200.

S32 said it would now limit investment in Mozal, stop pot relining and start standing down associated contractors from this month. It expects Mozal to be placed on care and maintenance when the current power deal expires.

Chief executive Graham Kerr said it was not viable for Mozal to operate under prices that would make it “internationally uncompetitive”.

“Without sufficient and affordable electricity supply, we expect the operation will be placed on care and maintenance at the end of the current agreement in March 2026,” Mr Kerr said.

“With care and maintenance the most likely scenario, it is no longer appropriate to continue activities such as pot relining and we will limit further investment in Mozal.

“We acknowledge the impact today’s announcement will have on our people and we will support them through this process.

“We’re proud of Mozal’s 25-year history and its economic and social contributions to the country.

“We are hopeful a workable solution emerges that enables Mozal to operate beyond March 2026, and maintain its substantial contribution to Mozambique.”

The smelter last financial year turned over more than $800 million.

S32 has a 63.7 per cent stake in the project, which produced 87,000 tonnes of aluminium in the March quarter.

The Industrial Development Corporation of South Africa holds 32.4 per cent and the Government of the Republic of Mozambique has a 3.9 per cent interest.

S32 said its current financial year share of production was forecast to be about 240,000t, reflecting fewer pots in operation as it stops pot relining and operations continuing only to March next year.

It also expected to book a $US372m ($568m) charge in its FY25 financials, including a $US339m writedown of property, plant and equipment.

“The impairment reflects our assessment that the most likely scenario is for Mozal to operate until the end of the current electricity supply agreement and be placed on care and maintenance in March 2026,” S32 said.

“The impairment reduces Mozal’s carrying value to $US68m, with the impairment to be excluded from FY25 underlying earnings, in accordance with our accounting policies.”