Mozambique 2016 | INDUSTRY | INTERVIEW

TBY talks to Danie Murray, Asset President of Mozal, on recent mergers, accessing financial markets, and the potential for new business.

Danie Murray
Danie Murray is a Chemical Engineering graduate from the University of Stellenbosch. He received his MBA from the Edinburgh Business School of Heriot-Watt University. He began his career as a process engineer at the NATREF crude oil refinery. Since then, he has played a significant role in the launch of the Mozal smelter, where he began as member of the original Operational Management team. He has also held various production management roles and directed projects for public infrastructure and facility integration. In 2012, he was appointed to his current role as Asset President of Mozal.

South32 was founded last May. Can you tell us about the project and the role of Mozal within the group?

On May 25th, 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.

What implications does this demerger have for Mozal?

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 Aluminum 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. Mozal has spent over $34 million on developing more than 200 projects for the benefit of the local community, working to provide a stronger governance framework and address various other challenges.

How would you assess your partnership with Midal, and what effects does this partnership have on the local economy?

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. Midal can be a long-term partner for Mozal. The benefit of partnering with Midal is that it will create additional opportunities for the service industry, as certain needs are unique to Midal's operation. For example, they require reels, which they are currently importing, on which to put their cable. This represents an opportunity to produce locally, and this will have an accelerating effect in terms of creating jobs throughout the rest of the industry. There is also an opportunity to setup manufacturing facilities downstream from Midal's operations to produce a variety of goods from the cable that Midal produces.

Which are your main export markets? 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 they depend 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.

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Wise Words

Aluminum Shower

BHP Billiton has decided to focus on five business lines, and is withdrawing from aluminum. How will this impact the company?In August 2014 BHP Billiton announced its plans to demerge its aluminum, manganese, and nickel and silver businesses along with some of its coal assets. Subject to board and shareholder approval, there would be a new company operating these assets under the name of South32, and Mozal will become quite a significant part of it. South32 will operate in five countries and be staffed by approximately 24,000 people. The business will then transition from a commodity-based structure into a regional-based entity, and Mozal will report to the African regional office located in Johannesburg. The new company will have a dedicated board and management team with a significant representation at the Johannesburg office, which will be greatly beneficial for Mozal.How would you describe the evolution of Mozal's contribution to GDP?Since the company was established in 2001, Mozal has continued to play a prominent role, contributing around 7% to GDP. We recently won an award from President Guebuza in recognition of this contribution. Currently, Mozal produces just below 570,000 tons per annum of primary aluminum ingot, with production entirely destined for export, mainly to Europe, the primary market for Mozal's metal output.What are your plans to support the domestic use of aluminum?There has been a spiking development in Mozambique's downstream industry. There was no other local market established until the development of Midal. We began delivering to Midal in October 2014 and once they ramp up their operations, we will be delivering 50,000 tons of metal per annum. Businesses can now be established downstream of Midal, creating an increased diversity of products in the downstream industry, while a unique service industry will also develop around Midal. I expect our relationship with Midal to be long term and sustainable for many years to come. The sizeable tonnage of aluminum that company will be receiving from us will be a major catalyst for the downstream industry.How would you categorize the significance of Mozal in other sectors?Mozal has played a significant role in infrastructure development, with road-access projects and a new port facility. For example, Mozal imports more than one million tons of alumina per annum through the port, which is then brought to the site by trucks. We also transport the entirety of our final product through the port, which is a considerable contribution to the transport industry.In addition to that, we continue to perform road maintenance even though it was not a part of our initial undertaking. We also direct around $2 million per annum toward our community work, some of which has gone into the construction of schools. To date we have built nine primary schools, a secondary school, a technical school, and a maintainer-training center.What challenges do you foresee over the next ten years for Mozal?One major challenge will be electricity supply. We have managed to cope with this so far by working closely with ESKOM and focusing on our productivity and operational efficiency to get more out of the available infrastructure. We have made good progress and have implemented a system we call Maximum Technical Capability. The other challenge is with commodity prices. This has been a challenge over the recent period, although Mozal has been effective with regards to cost cutting, as we have been able to focus extensively on efficiency. We also pay considerable attention to skills. All of the potential development in the country and the exploitation of its resources will result in a great need for a skilled workforce, which will present a challenge for the entire industry. 6

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