Production costs for aluminium produced by South32 in South Africa and Mozambique spiked during the quarter to December as a result of a stronger rand currency although it expects prices for the manganese ore it produces to be stronger by about 5% for the same period.
Although the rand opened this year on a backfoot, it rallied during the quarter to December on the back of a bullish outlook to South Africa’s policy framework and expected improvements in the operating framework.
The stronger rand for the quarter to December had a double edged sword impact on South32.
“The cost profile of our South African aluminium smelters is heavily influenced by the South African rand, and the price of raw materials and energy,” the company said.
“First half operating unit costs for Hillside Aluminium in SA and Mozal Aluminium in Mozambique are expected to be 10% above the half year to June $2 097 per ton due to a stronger South African rand and higher alumina prices.”
Conversely,South32 anticipates a 5% increase in free on board prices for its manganese ore, also benefiting from the stronger rand. However, this positive expectation is counterbalanced by lower price-linked royalties, complicating the financial outlook for the mining giant.
Notably, the company saw a 3% decrease in half-year saleable manganese production from South Africa, totalling around 1.082 million wet metric tons.
This reduction can be linked to decreased reliance on higher-cost trucking options and a decision to temporarily shut down operations at its Wessels mine amid weaker market conditions.
Nonetheless, South32 is maintaining its full year production guidance of about 2 million wet metric tons for manganese ore from South Africa while it continues to “monitor and respond to market” conditions.
Its South African aluminium operations at Hillside raised saleable production by 1% to 362 000 tons in the half year period to December “as the smelter continued to test its maximum technical capacity, despite the impact of load shedding”.
Aluminium sales from Hillside firmed up by 10% in the December 2024 quarter as inventories at the mine returned to normal levels.
However, in Mozambique, South32 experienced disruptions to the transportation of raw materials to the Mozal smelter in December due to the road blockages that characterised the civil unrest rocking the southern African country.
“We subsequently reduced amperage to the potlines, reducing aluminium production capacity by approximately 3%, to preserve raw materials and maintain operational stability. In recent weeks, we have re-built alumina stocks at the smelter as we successfully implemented contingency plans and road blockages eased,” explained South32.
While Mozal Aluminium has continued to operate and export aluminium to its clients, any further escalation in the civil unrest “has the potential to impact our critical trucking activity” and operations.
As a result of this uncertainty, South32 has withdrawn its earlier guidance for aluminium production from Mozambique.
South32 CEO, Graham Kerr, said the company had delivered higher base metals production across its portfolio after increasing alumina production by 14%, enabling the company to capture the benefit of strong alumina prices.
“We returned $169 million to shareholders, paying fully-franked ordinary dividends in respect of the prior six months and continuing our on-market share buy- back, leaving $171m to be returned to shareholders under our capital management program,” Kerr said.
“We also continued to strengthen our growth pipeline, embedding additional copper exploration options in highly prospective regions during the period.”
In afternoon trade on the JSE on Monday, South32 was trading 0.6% stronger at R41.13 per share. Shares in the company have strengthened 3.7% over the past seven days.
BUSINESS REPORT