South32 scrambles for way out of SA and Mozambique crises

South32 scrambles for way out of SA and Mozambique crises

South32 is scrambling for a way out of a potential electricity supply crisis at its Mozal Aluminium project in Mozambique that is powered by Eskom. Meanwhile port delays at Richards Bay forced a reduction in shipments although elevated capital expenditure yielded an uplift in manganese production from its two mines in the Kalahari Basin.

Spun off BHP Billiton in 2015, South32 yesterday reported a 15% decline in revenue for the half year period to December at $3.1 billion (R59bn), with after tax profits from all of its operations also falling 92% to $53 million.

With basic earnings per share for the half year also down 92% at 1.2 cents (US$), investors in the company on the JSE reacted negatively, shaving off 3.7% off its shares, which traded at R36.72 in the afternoon trading session.

With the 900MW of electricity needed for South32’s Mozambican aluminium operation, Mozal, generated by Hidroeléctrica de Cahora Bassa (HCB) and transmitted through Eskom, the company is scrambling for a way out of a potential power supply crisis.

Mozal’s power supply agreement with HCB runs out in 2026 while Mozambique has reportedly decided to end exports of electricity in 2031.

South32’s CEO, Graham Kerr, said during a briefing of the company’s result yesterday, “We have been in discussions for a period of time and have a dedicated team for this. Part of that work is putting together if you like a working group from our side, and a number of key advisers and ministers to continue to track this through.”

He said Mozal was a key economic player in Mozambique and added that the company was working to find closure to the issue. South32’s precarious situation with securing an alternative source of power for Mozal is made worse by the fact that “there are currently no viable alternative suppliers of renewable energy” at the required scale for the operation.

“And so we want to push that to closure. And I think, you know, by the end of this FY, we should clearly have a direction,” he said.

South32’s production of saleable manganese from South Africa was up 2% on the prior period half year after attaining record production levels in the quarter to September. This followed the completion of a planned maintenance shutdown at the Mamatwan mine.

Capital expenditure geared towards safe and reliable operations for the South African manganese operations, however, leaped by $13m to $20m during the half year period. By the end of the full year to June, South32 expects to spend an additional $10m as it “upgrades our rail infrastructure to improve efficiencies”. An additional $6m was spent on improvement and life extension capex during the half year period to December.

Production from South32’s aluminium operations at the Hillside aluminium smelter at Richards Bay decreased by 1% to 359 000 tons during the period under review.

The company said the sagged output from Hillside was recorded against the backdrop of the smelter continuing to “test its maximum technical capacity” and “despite the impact of elevated load-shedding” by Eskom.

“The smelter’s electricity is supplied by Eskom under a contract to 2031, with a tariff that is South African rand based and a rate of escalation linked to the South Africa Producer Price Index. We continue to work with Eskom and other stakeholders in the South African energy sector on pathways to secure lower carbon electricity supply,” South32 said.

Underlying Ebit (Earnings before interest and taxes) from the Hillside aluminium smelter was 56% lower for the half year at $27m on account of “lower smelter raw material input prices” and a weaker South African rand.

However, a 9% reduction in the average realised price of aluminium, higher energy prices and lower sales volumes attributable to “port congestion” at Richards Bay that “impacted the timing of shipments” weighed down the company. Capital expenditure increased by $15m to $25m in the first half of 2024.

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