South32’s Mozambique Aluminum Plant: A Harbinger of Climate-Driven Supply Chain Disruptions?
Diversified Australian mining group South32 is preparing to place its Mozambican aluminum plant into care and maintenance next month, a move triggered by a severe drought impacting power supply. This decision, announced alongside better-than-expected interim profits, highlights a growing vulnerability within global supply chains: the increasing risk of climate-related disruptions to critical resource production.
Drought and Energy Crisis in Mozambique
The situation at South32’s Mozal plant underscores the precariousness of relying on hydroelectric power in regions susceptible to prolonged drought. Last year, South32 recognized this risk with a $372 million impairment to the asset, anticipating challenges in securing affordable energy post-March 2026. Attempts to secure alternative supply from South African utility Eskom proved unsuccessful due to pricing disagreements.
According to South32’s outgoing CEO Graham Kerr, the plant is rapidly depleting its stock of pitch and coke. Even with a new energy contract secured today, delivery wouldn’t be timely enough to maintain operations. The closure will significantly impact Mozambique’s economy, as the plant directly employs over 2,000 people, plus an additional 2,000 contractors, representing a third of the nation’s manufacturing jobs.
Ripple Effects and Shifting Supply Chains
The aluminum originally intended for processing at the Mozal plant will likely be redirected to the Middle East. This shift exemplifies a broader trend of supply chain reconfiguration in response to localized disruptions. Companies are increasingly forced to diversify sourcing and build resilience into their operations, often at a significant cost.
Strong Financial Results Mask Underlying Risks
Despite the challenges in Mozambique, South32 reported a strong interim profit of $435 million for the six months ending December 31st, exceeding analyst expectations of $386.6 million. This positive performance was driven by higher commodity prices – particularly for copper, silver, and aluminum – lower controllable costs, and the recovery of operations at its manganese division in Australia.
The Australian manganese division, a global leader in manganese production, rebounded from the impact of Tropical Cyclone Megan, posting a $66 million underlying operating profit before interest and taxes, a significant improvement from a $34 million loss the previous year.
Production Guidance Revised Downward
However, South32 lowered its production guidance for its aluminum division in Brazil, projecting 135,000 metric tons for the current fiscal year (down from 160,000) and 140,000 metric tons for the next (down from 165,000). This reduction reflects ongoing efforts to improve stability and restore full production across all three production lines.
Dividends and Future Outlook
South32 declared an interim dividend of 3.9 cents per share, up from 3.4 cents the previous year. The company, spun off from BHP in 2015, is navigating a complex landscape of commodity price volatility and escalating climate risks.
The Broader Implications for the Mining Industry
South32’s experience isn’t isolated. The mining industry, heavily reliant on water and energy, is particularly vulnerable to the impacts of climate change. Increased frequency and intensity of droughts, floods, and extreme weather events are disrupting operations, increasing costs, and threatening long-term sustainability.
Pro Tip:
Companies should prioritize comprehensive climate risk assessments and develop robust adaptation strategies, including diversifying energy sources, investing in water management technologies, and building stronger relationships with local communities.
FAQ
Q: What is “care and maintenance”?
A: It’s a temporary shutdown of a facility, preserving it for potential future restart when conditions improve.
Q: What impact will this have on aluminum prices?
A: Reduced supply from Mozambique could contribute to upward pressure on aluminum prices, though the overall impact will depend on global demand and supply from other sources.
Q: Is this a sign of things to approach for other mining operations?
A: Yes, climate-related disruptions are expected to grow more frequent and severe, impacting mining operations worldwide.
Did you know?
The mining industry accounts for a significant portion of global energy consumption and greenhouse gas emissions, making it a key player in the transition to a low-carbon economy.
Explore our other articles on sustainable mining practices and the future of resource extraction. Click here to learn more.
