POLITICAL tension in South Africa was holding back the adoption of renewable power which was a critical part of South32’s efforts to install green aluminium production, said the Australian group’s CEO Graham Kerr.
Asked for an update on progress by South32 to reduce Scope 2 and 3 emissions 50% by 2035, Kerr said it was important for South Africa to assist its own technological plans. In a call with analysts today, he said: “There is still some tension at the political level around the role that coal plays versus what role renewables are going to play”.
Eskom, a state-owned company, operates 15 coal-fired power stations generating about 80% of South Africa’s electricity supply. Although Eskom CEO Andre de Ruyter has spoken of reducing power from coal, the regulatory processes to support it – such as raising the cap on private sector renewable power production – have been glacially slow.
“Our team is working very clearly on how to articulate that [important of adopting renewable power]. What the government needs to recognise is roughly 30% of what we produce [in aluminium] goes downstream to make parts that go into Europe. So to keep jobs alive they need to find a way to green,” Kerr said.
“Something, I should add is the Eskom CEO [De Ruyter] has been hugely supportive of this and he is very focused on how he greens his network,” Kerr added.
South32 produced 358,000 tons of aluminium from its Hillside facilities in South Africa’s Kwazulu-Natal province in the first six months of its financial year, announced earlier on Thursday. It has forecast production for the year of 720,000 tons.
Gwede Mantashe, minister of South Africa’s Department of Minerals and Energy, has acknowledged the role of renewables but continues to defend coal production, partly on the basis of preserving jobs. He recently hit back at claims he was a ‘coal fundamentalist’.
“We are in a country where energy is generated by a 15-strong coal fleet. There is a commitment to move from a high carbon emissions economy to a low emissions economy. Everybody is committed to that. The debate is how do do we navigate through that transition,” he told the Solar Power Africa conference in Cape Town in a report by Fin24.
Despite the headwinds in South Africa, Kerr also acknowledged that: “… there are a lot of things pointing in the right direction”, identifying a proposed $8.5bn investment by the US, Britain, France, Germany and the European Union in November aimed at helping the transition from coal to renewable power.
South32’s Hillside aluminium smelter is currently supplied by Eskom in terms of a recently signed 10-year power agreement. Kerr said this provided a window enabling South32 to implement a combination of solar and wind technologies that would help Hillside reduce emissions. A high level team was working on options, said Noel Pillay, COO of South32’s Africa and Colombia operations.
It is critical for South32 to reduce emissions at the smelter in order to command a premium for its aluminium and secure offtake as customers are increasingly turning to low emission suppliers.
Capital return
South32 extended its capital return programme $110m to $2.1bn which leaves $302m in potential share buybacks. This followed a strong interim showing by the group in which it reported a major turnaround in its bottom line fortunes.
Taxed profit came in at $1.03bn for the six months ended December which compares to a slim $53m in profits for the interim period last year. Kerr put the improvement down to a positive swing in commodity prices and lower costs stemming from portfolio reshaping.
He also pointed to record manganese production from the group’s South African operations as well as improved alumina output in Brazil.
The manganese operations, held in joint venture with Anglo American, contributed towards free cash flow of $942m. This was despite a working capital build up caused by logistics congestion predominantly in the group’s “South Africa aluminium value chain”. South32 finished the period with net cash of $975m.
It declared a $405m fully franked interim dividend.
“Our business is in excellent financial health and we have continued to reshape our portfolio, with the planned acquisition of a 45% stake in the Sierra Gorda copper mine, and further investment in green aluminium,” said Kerr in commentary to the results.
