South32 pulls the plug on Mozal: Self-inflicted economic tragedy for SADEC

Key topics:South32 to close Mozal smelter by March 2026, economic shock looms.Energy price disputes and drought make operations unviable.Thousands of jobs and regional supply chains at risk..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By BizNews Reporter.It is the news many have been dreading and predicting for months. The writing has been on the wall since August, and yesterday, the hammer finally fell. South32 announced it will place the massive Mozal Aluminium smelter on "care and maintenance" by March 2026.Make no mistake: despite the polite corporate euphemisms of "care and maintenance," this is a closure. And for the Southern African economy, it is a disaster.After six years of negotiations with Eskom, the Mozambican government and its hydro-utility, HCB (Hidroeléctrica de Cahora Bassa), have reached a deadlock. The parties could not agree on an electricity price that would keep the smelter internationally competitive.South32 CEO Graham Kerr didn't mince words: "Unfortunately, the parties remained deadlocked on an appropriate electricity price."The tragedy here is that the closure was avoidable. The lack of pricing flexibility is likely to raise concerns, given similar last-minute discussions that began last week between Eskom and the remaining SA smelters operated by Glencore/Merafe and Samancor. .Economics of Greed?.At its core, this is a story of government overreach and a failure to understand global capital markets. Mozal is not just a factory; it is an economic engine. It contributes roughly 3% to Mozambique’s entire GDP and accounts for nearly half of the country’s electricity consumption.For years, the smelter operated on a mix of hydro power from Cahora Bassa and supplementary power from Eskom. But as the contract renewal approached, the state utilities became more demanding. Reports suggest the Mozambican authorities pushed for a tariff hike that would have effectively doubled the smelter’s energy costs.In the commodities game, where margins are set by the London Metal Exchange, rather than out-of-touch politicians in Maputo, such math doesn't work. South32 has a fiduciary duty to its shareholders. Where input costs exceed the globally competitive threshold, capital moves elsewhere. It is a lesson Southern African governments appear determined to learn the hard way..The Drought Factor.To be fair, nature played a cruel hand. The drought affecting the Zambezi River basin has severely curtailed generation capacity at the Cahora Bassa Dam.With HCB no longer able to guarantee a full supply, reliance on Eskom increased. But Eskom, as South Africans know all too well, has its own pricing and supply battles. The perfect storm of bureaucratic intransigence and climate reality has rendered the operation unviable..The Fallout.The human cost will be staggering. Mozal employs around 5,000 people directly and through contractors. But the multiplier effect of a smelter is roughly 10-to-1. We are looking at tens of thousands of livelihoods evaporating in a region that can ill afford it.For Mozambique, losing its flagship industrial tenant is a reputational blow that may take decades to recover from. Who invests billions in a country where the goalposts shift so dramatically?For South Africa, the pain is less direct but still acute. Eskom loses a reliable, hard-currency-paying customer at a time when its balance sheet remains fragile. Moreover, the disruption to the regional supply chain—suppliers, logistics, and services—will ripple across the border into Mpumalanga and KwaZulu-Natal..What Next?.South32 has already taken a $372 million impairment on the asset. The company is moving on. The smelter will wind down operations over the next three months, with pot relining having already ceased.There is a slim theoretical hope that the shock of this official announcement might prompt the Mozambican government to return to the table with a realistic offer before the March deadline. But don't hold your breath. In the high-stakes poker game of resource nationalism, Mozambique’s socialists have just bet the house—and lost.