Hillside smelter celebrates 30 years as tough power talks loom

The ghost of South32’s mothballed Mozambican smelter loomed large over Richards Bay this week as senior officials gathered to celebrate the 30th birthday of the Hillside Aluminium smelter.

An anniversary dinner attended by President Cyril Ramaphosa, electricity & energy minister Kgotsientso Ramokgopa and South32 executives lauded the smelter’s impressive role in supporting more than 30,000 jobs directly and in downstream industries.

Behind the congratulatory veneer, however, the government is navigating high-stakes negotiations with the Australian behemoth over its next South African power deal, with only two months having passed since Hillside’s Mozambican counterpart, Mozal Aluminium, was placed on care and maintenance over an “uncompetitive” tariff.

South32 CEO Graham Kerr told journalists on the sidelines of Hillside’s 30th anniversary celebrations that he was confident the group would land a suitable follow-up deal with Eskom by around 2029.

“There are a lot of jobs in South Africa from Hillside, particularly from downstream processing. But also, if Eskom doesn’t have its largest paying customer paying revenue, where is it going to get its money?

“We’ve had a good relationship with Eskom for a long time, and a working group has been working for around four years. Hillside can run for another 20-30 years, but like all aluminium smelters it requires a contract that makes it competitive.”

Hillside’s energy-intensive operations mean the smelter on its own uses as much power as the whole of the Eastern Cape — around 5% of South Africa’s total electricity consumption, producing 2,000t of aluminium ingots every day.

The nature of aluminium smelting means that that power demand stays the same 24 hours a day, 365 days a year, providing Eskom with an attractive chunk of “baseload”.

That gives Hillside a lot of leverage. As Eskom’s biggest customer, it enjoys a hefty discount on power, around 50%. That deal, which expires in 2031, will save the operation around R92bn over its 10-year lifespan.

In recent weeks, South32 and Eskom announced they were negotiating terms for the post-2031 power plan with an eye to bringing more renewables on board in order to green up both their operations.

The tone is comfortably optimistic, given Hillside’s role in South Africa’s post-democratic industrialisation story. Thirty years ago, the plant’s opening ceremony was attended by none other than then-president Nelson Mandela, who hailed Hillside as an example of business that would drive South Africa’s thriving new economy.

“Hillside was conceived in a defining period in South Africa’s history. A mega project, representing the single-largest private investment in the nation at the time,” said Kerr in his anniversary speech.

Still, the fresh memory of Mozal’s recent closure brings a heaviness to the talks.

According to Kerr, early estimates suggest the closure of South32’s Mozambican smelter this year could wipe out a fifth of Maputo’s GDP.

The operation is Mozambique’s largest industrial employer, contributing about 30% of the country’s manufacturing output and just more than 3% of national GDP. About 30,000 jobs are expected to be lost in the country, which grapples with high unemployment and poverty.

Eskom, in the SO2 emission dispatch prioritisation strategy released this year, said the energy forecast indicated a decline in energy sales over time, which followed the previous year’s trend.

“The sharp decline in FY2031 is based on the Mozal contract being extended to March 2030. However, if it’s not extended the decline may be realised earlier, in FY2027,” Eskom said.

South32’s negotiations with Eskom come as the utility provider called on energy regulator Nersa to fast-track electricity tariff relief in the ferrochrome sector in a bid to save thousands of jobs.

Eskom has agreed to back a 62c a unit rate for Glencore and Samancor, more than 54% below the R1.36 rate previously paid by the smelters and well below the interim tariff of 87.74c they have had since January.

Business Times