UBS has revised its price target for South32 downward, from $3.20 to $3 per share, citing increased risks associated with the company’s Mozal aluminium smelter in Mozambique. In a note to clients, the broker highlighted growing uncertainty surrounding the smelter’s future power supply. South32, a diversified mining and metals company producing commodities such as alumina, aluminium, and metallurgical coal, is yet to secure a new electricity contract beyond March 2026 for the Mozal operation.
Adding to the concerns, worsening drought conditions are impacting the hydropower generation capacity of Mozambique’s Cahora Bassa dam. This dam supplies power to the smelter via South Africa’s Eskom. UBS analyst Lachan Shaw noted that the combination of contract uncertainty and water scarcity is elevating both operational and economic risks for South32.
UBS now anticipates higher power costs at Mozal, leading to a roughly $US400 million reduction in the asset’s valuation. The broker has also factored in a similar-sized impairment charge expected to be recognised in South32’s FY25 results. Earnings estimates for FY26 and FY27 have been lowered by 2 to 3 per cent to reflect these challenges.
UBS also cautioned that significant restart costs could be incurred if the power supply is curtailed due to drought. The idling and relining of potlines could take over a year and cost hundreds of millions of dollars, potentially resulting in further downside for the stock. Shares in South32 were down 3 per cent at 1.45pm.
