South32 was founded last May. Can you tell us about the project and the role of Mozal within the group?
On May 25, 2015 BHP Billiton completed its demerger, which saw the creation of South32 as an independent company. South32 is a globally diversified metals and mining company with high-quality and well-maintained operations mining and producing bauxite, alumina, aluminum, energy and metallurgical coal, manganese, nickel, silver, lead, and zinc in Australia, South Africa, Brazil, Colombia, and Mozambique with the Mozal smelter. The roots of South32 are in the Southern Hemisphere, with a head office in Perth and regional hubs in Perth and Johannesburg, South Africa. South32 listed in May 2015 and our securities trade on the Australian Securities Exchange (ASX), Johannesburg Stock Exchange (JSE), London Stock Exchange (LSE), and the NY American Depositary Receipts Programme under the listing code of S32. We believe that, when we work together, we create a brighter future for all.
What implications does this demerger have for Mozal, if any?
South32 operates using a regional operating model. Our businesses are run by people who understand their communities and the environment in which they operate. Our African businesses are managed from a regional hub in Johannesburg, with our Australian and South American businesses managed through Perth. There is a lot more attention being given by senior management and the CEO to developing strategies that are most suitable for the assets in operation in Africa. This integrated approach allows us to more closely align our businesses with the needs of our stakeholders and empowers us to optimize support functions regionally to deliver more efficient and productive operations. Following the demerger, Mozal became part of South32, and produces in excess of 560,000 tons of primary aluminum using Aluminium Pechiney AP35 technology to produce standard aluminum ingots. The smelter currently employs 1,200 direct employees and 700 contractors and has been a contributor to many more indirect jobs. In the community, Mozal has developed more than 200 projects, spending over $34m to provide a governance framework and address multiple challenges within community projects. Recently, Mozal signed an agreement under which it will supply 50,000 tons of aluminum to Midal, one of the world's largest manufacturers of aluminum cables.
In 2014, you told us that the goal was to increase efficiency and productivity within the company. How have you gone about doing that?
We focused on key value drivers and operational indicators that would improve our energy efficiency and our production efficiency, focusing a lot on general productivity and cost improvements. The result was an efficiency improvement of approximately $40 million, a very successful achievement.
As a major exporter, how has the depreciation of the local currency helped increase your revenues in Mozambique?
Our commodities revenues are determined by the London Metal Exchange price, which is a published price of aluminum. The benefit in terms of currency depreciation is really more on the cost side. Our costs that are conducted in the local currency have seen relative savings, but we also incur dollar-based costs, for instance on a few of our raw materials.
To where do you export primarily, and do you anticipate supplying more aluminum for the domestic market in the coming years?
We export mostly to Europe. Of our remaining output, about 50,000 tons per annum goes to Midal. There is of course the potential to supply more of our production to the domestic market, but speculating on these developments is difficult as it depends on various factors of business confidence and the specific markets of related industries. The activities downstream from Midal should be one key area of focus. Developing this aspect would stimulate production that can be utilized in the domestic market. Once this is sustainably implemented there could be new sources of profitability.
What are Mozal's biggest achievements in Mozambique?
We have been making many improvements to productivity, but we have also been doing a lot of work in the community as well. We attracted some funds from our previous shareholder, the BHP Billiton Sustainable Communities Fund, to invest in the community and focus on a few large projects. Around $28 million was the total project funding two years ago. This will go toward social causes and will be completed over the next three years. These projects include: the Global Fund to fight AIDS, Tuberculosis, and Malaria; the Livelihoods Empowerment and Development (LEAD) Project, an initiative that works with more than 50 producer organizations that represent farmers to increase their income and business opportunities, improve production capacity through farm-level training, and facilitate access to financing; the child and maternal health care project, which focuses on improving prenatal and newborn care, infant nutrition, and child development practices; and the Water, Sanitation, and Hygiene (WASH) project that aims to transform lives through access to safe water. Our programs have been well received by the community. One of our focus areas has been to become the employer of choice, as well. We have been doing much work in terms of the employee value proposition, and earlier this year we began a housing project for our employees that is due to be completed in 2017. Among many other projects, Mozal is also implementing an integrated project, improving community access to quality HIV care and other health services in the Boane district, which complements ongoing efforts and further strengthens awareness and prevention in communities while building capacity within existing health units. The creation of shared value is what drives our decision-making processes. We work to understand the needs of all our stakeholders, including communities and shareholders, and align our business to deliver on their needs.
What are your expectations for 2016?
The global commodity-based economy is currently under a tremendous cost pressure because of current market prices. Aluminum is not immune to these factors, so Mozal has also been under pressure. That said, safety is one of Mozal's business pillars, and we are not making any compromises on that front, regardless of prices. Safety remains our top priority, and results speak for themselves. We have focused instead on increasing efficiency of production and energy use. We want to operate our assets to the fullest and become benchmark operators in terms of performance indicators. We are also committed to continuing our community projects.