South32 is in a race against time to find green energy for its Hillside aluminium smelters in KwaZulu-Natal’s, Richards Bay if the diversified miner wants to guarantee access to markets in Europe and the Americas.
CEO Graham Kerr said there is an increasing demand for green aluminium from Europe. “And that worries us. We need to prepare Hillside to make sure we can keep on selling to Europe.
Kerr made these comments during a media conference call, following the announcement of the company’s results for the full year ended June 2023. South32, with assets in Australia, South Africa, Columbia and Brazil, reported a 20% drop in revenue and a $173m loss on the back of a non-cash impairment of $1.3 billion at operations at its Hermosa project in Arizona in the United States.
South32’s South African operations are continuing to cause major headaches for its management due to logistical constraints ¬– Eskom’s unreliable electricity provision and Transnet Freight Rail’s (TFR) lack of rail capacity to transport manganese from its manganese mines in the Kalahari Basin in the Northern Cape.
Despite the uphill battles, Hillside Aluminium’s saleable production increased by 1% — or 5 kilotonnes (kt) to a record of 719 kt in the current financial year, regardless of loadshedding. The smelter is expected to continue its strong operating performance in the 2024 and 2025 financial years.
With regard to energy generation, Kerr said its contract with Eskom to provide electricity to its Hillside smelters will last until 2031. The miner is currently in discussions with Eskom and other stakeholders to secure lower carbon electricity supply. “We have signed a non-binding memorandum of understanding with Eskom to explore the potential to enter into a pilot agreement to purchase energy attributes associated with the electricity generated at Eskom’s Koeberg Nuclear Power Station.” In addition, South32 will continue to investigate other low-carbon energy solutions, such as wind and solar power and battery storage over the medium to long term.
“We aim to halve our scope one and two emissions by 2035 at which Hillside is the biggest contributor.”
The European Parliament and the European Union approved a framework of cross-border carbon tax in May this year – known as the carbon border adjustment mechanism (CBAM), which means any imports from other jurisdictions manufactured and produced with harmful emissions will incur an additional tax.
Kerr said the first phase of CBAM will come into effect in 2026 – for Scope One emissions. “This will definitely put pressure on what we do in terms of carbon per tonne intensity, which is part of the reason why we’re looking at nuclear attributes now.”
The second phase’s Scope Two will come into play in 2030 and although the details must still be ironed out, South32 will need a renewable power solution by that time.
Asked how TFR’s poor performance has impacted South32’s manganese operations, Kerr said the fact that the major manganese producers, including South32, had lost 15% of their rail allocation to emerging and junior miners was a setback.
This has meant significant volumes of manganese have had to move from rail to truck transport via road. “There’s a range at which it will make sense to truck manganese by road, depending on foreign exchange and fuel costs and that range is between $4 and $5. “[it’s] “difficult to compete globally if one can’t get onto rail,” Kerr said.
Transnet and mining executives, including South32, are in discussions about “co-creating” solutions so that big manganese miners could regain lost capacity on rail, but the plans are still vague in terms of cost and scope and what contribution industry will have to bring to the table.
South32’s South Africa Manganese saleable production increased by 2% in the year under review to a record 2 108kwmt. Operating unit costs decreased by 3% as the benefit of a weaker South African rand offset lower sales volumes due to a temporary reduction in third-party rail and port availability, South32 said in its results announcement.