SOUTH32 is waiting for firm proposals from minority shareholders in Mozal Aluminium before progressing recently hatched plans to sell the 370,000 ton a year Mozambique smelter.
South32, which has a 63.7% stake in Mozal, placed the facility on care and maintenance in March after failing to secure a new long-term power supply deal with power utilities in Mozambique and South Africa.
Subsequent to that, the Industrial Development Corporation (IDC) – which is a 31.4% shareholder in Mozal – investigated either buying out South32 or introducing new partners. The IDC is also considering selling its Mozal stake, which currently costs an attributable $1.55m (R25m) per month (R300m annualised) to keep in mothballs.
Graham Kerr, who today stepped down as CEO of South32 after nearly 12 years, said it didn’t make sense for the company to retain an investment in Mozal given it had also announced the sale of its entire aluminium chain to Alcoa for $4.1bn.
“When it comes to Mozal, we have two partners — the government of Mozambique and the IDC — who’ve both expressed an interest in buying, or changing the ownership structure at Mozal, which we’ve been open to,” Kerr said in an interview.
“It probably hasn’t picked up sufficient steam yet to progress past that. The ball’s really sitting in their court, but as time goes by we’d expect them to either come to the table or test the market,” he said.
“There’s no point in us holding on to Mozal without a book, without an aluminium feed. It’s really just about how we do it in the right, responsible way — recognising our existing partners and how certain rights need to work through,” he said.
Shares in South32 gained just over 9% in Johannesburg following news of the deal with Alcoa, the Canadian mining giant. The transaction is for South32’s MRN bauxite mine in Brazil, its stake in the Brazil Alumina refinery, as well as Worsley Alumina in Australia. Hillside, the KwaZulu-Natal smelter, is also part of the deal, though Mozal was omitted.
“If Mozal had an affordable power contract today and was running normally, it would have been included in the transaction,” said Kerr.
“The fact that it doesn’t have a line of sight to an affordable power contract over a decent period, with stability, makes it very difficult to sell to anyone — other than perhaps the government of Mozambique, who believe that within four years it might be energy self-sufficient,” he added.
As for Hillside, Kerr said Alcoa had been impressed by the asset. “Without putting words in their [Alcoa’s] mouth, I’d say they’re impressed with how Hillside operates. I’d be surprised if they didn’t find Hillside attractive as a long-term hold.”
New CEO
Matt Daley, formerly technical and operations director at Anglo American, now takes over a portfolio that is vastly changed from the assets demerged from BHP in 2015.
Assuming the Alcoa deal is passed by South32 shareholders in October, and receives regulatory approvals, it will be concluded by the second half of 2027. At that point, South32 will have three main business drivers — copper, other base metals including zinc, and a stake in the Samancor manganese joint venture in South Africa.
South32 has, post the deal closing, raised the prospect of revisiting its capital allocation framework. This poses interesting questions considering the group is increasingly pointed towards development assets, though with production due online.
“It’s been a fun day, actually — really honoured to be stepping into the role,” said Daley on his first 24 hours as CEO. “What’s going to change on the other side [of the Alcoa deal] is this: we’ve got a dividend policy today of 40% of underlying earnings, and that’ll stay in place right through the transition — the next 12 months to [deal] closure.
“Once that’s closed, we’ll look at that framework again and how it plays into the future, acknowledging that a lot of our investment will be geared towards growth in base metals — particularly Hermosa and Sierra Gorda,” he said.
In a flurry of announcements, South32 also said today it had approved the $725m installation of additional processing facilities at Sierra Gorda, a copper and molybdenum mine in Chile. South32 has a 45% stake in Sierra Gorda.
The addition of a fourth grinding line will increase ore throughput capacity to 60 million tons a year, up from 48 million tons annually at present. The outcome is an increase in average payable copper production to 195,000 tons, on a 100% basis.
In addition to increased molybdenum (up to 6,000 tons annually), the addition of a fourth line will also lift gold output to 58,000 ounces a year, and 1.7 million ounces of silver, for a total 30% increase in copper equivalent production to 250,000 tons a year.
