South32 shares (ASX:S32) came under increasing scrutiny today as its price fell 5.14%, on an announcement regarding a potential impairment at its Mozal Aluminium smelter in Mozambique. This latest dip compounds existing anxieties, bringing the stock’s year-to-date decline to nearly 15% and raising questions about the company’s near-term outlook leading into financial results.
The primary driver behind the market’s negative reaction is growing uncertainty surrounding the long-term viability of Mozal due to difficulties securing a sustainable and affordable electricity supply beyond March 2026. Drought conditions impacting the Hidroeléctrica de Cahora Bassa (HCB), the primary power supplier, coupled with ongoing tariff negotiations, have cast a shadow over the smelter’s future, forcing South32 to consider a significant impairment charge in its upcoming FY25 results, expected in August 2025.
The Mozal situation is not an isolated incident, but rather the latest in a string of headwinds that have hit South32 over the past year. This time last year, the company disappointed investors with a downgraded production guidance for FY25, citing reduced alumina, copper, and zinc output. This announcement, coupled with pre-tax impairment expenses for Worsley Alumina and Cerro Matoso, triggered a sharp 10% drop in the share price at the time. Further exacerbating matters, civil unrest in Mozambique in December 2024 disrupted the supply chain to Mozal, leading to a temporary withdrawal of production guidance for the facility and further eroding investor confidence.
The upcoming FY25 results in August will be crucial for investors seeking clarity on the magnitude of the Mozal impairment and the company’s plans to mitigate the impact. Management’s forward guidance on Mozal’s future, as well as strategies to address the broader operational challenges, will likely prove to be more important than the results themselves. Outlook and guidance can be expected to provide the key to the next leg for S32.
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