South32 shares slide on Mozal impairment, RBC says concerns 'well flagged'
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More news: South32 shares tumbled in morning trade after the mining group announced a $568 million impairment on its Mozal Aluminium smelter in Mozambique.
Shares were down 3.6% to $2.95 at 11:25am AEST, taking losses to 13.2% since the turn of the year.
RBC Capital Markets analyst Kaan Peker said despite the negative update, concerns over the future of Mozal's power agreement were "well flagged". He noted that South32's initial announcement in July saw the stock fall 5% in a single session.
Peker said South32's negotiations over affordable electricity supply at Mozal "appear to be deadlocked", and warned that the ability of the smelter to accommodate significantly higher prices "is not feasible" and harms the long-term viability of the asset.
What they said: "Given that Mozal is already a higher cost operation, the worst case scenario would be for the smelter to be shut-down and alumina is sold into the spot market, in our view, which we roughly estimate presents ~$200 million of residual value (net reduction in asset value of $1.0 billion ... or 8-9% of group valuation)," Peker wrote.
South32 flags $568m impairment on Mozal Aluminium
The news: Diversified miner South32 has flagged an impairment of USD372 million ($568.4 million) on its Mozal Aluminium smelter in Mozambique after attempts to secure electricity at the site beyond March 2026 failed to reach a resolution.
The numbers: The impairment charge, which will be recognised in the company's FY25 financial results, will include USD339 million of property, plant and equipment; USD7 million of intangible assets; and USD26 million of raw materials and consumables. The charge reduces Mozal's carrying value to USD68 million.
The context: South32 said the impairment reflects the miner's assessment that the "most likely scenario" is for Mozal to operate until the end of its current electricity supply agreement, and for the site to be placed into care and maintenance in March 2026.
South32 will limit investment in Mozal and stand down associated contractors this month, it said.
The miner warned investors of the possible impairment last month, after Mozal's main electricity supplier Hidroeléctrica de Cahora Bassa (HCB) indicated that drought conditions may impact future supply.
South32 has been in discussions with HCB and the Mozambique government over the issue, but said this morning that the engagements "do not provide confidence" that Mozal will secure sufficient and affordable electricity beyond its current supply agreement, which expires in March.
The source: ASX
