Mozal shutdown has hurt South32 but Hermosa now drives the valuation

Mozal Aluminium has gone from a producing smelter to care and maintenance, and that single change says a lot about South32 (ASX: S32) right now.

On one hand, the company has lost output from an established aluminium asset after failing to secure enough affordable power beyond March 2026. On the other, it still owns a portfolio of long-life operations and development assets across alumina, copper, zinc, silver and manganese that gives the group more substance than this latest setback suggests.

That tension has defined the stock over the past year. South32 has not had a clean run, but it also has not looked like a business in retreat. Stronger first-half earnings, portfolio simplification and progress at Hermosa and Sierra Gorda have supported sentiment, while the Mozal power problem has reminded investors that mining valuations can turn on operational detail, not just commodity prices.

Over the last 12 months, the share price story has been uneven rather than one-directional. The biggest clear shock came with the Mozal update in December, when South32 confirmed the smelter would move to care and maintenance around 15 March 2026 because a new electricity supply agreement had not been secured.

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South32 loses smelter output at Mozal

That announcement mattered because it was not a temporary outage or a small cost increase. It removed a production stream, added one-off costs of US$60m and left the market reassessing the value of the aluminium division.

The largest share price reaction was tied to that Mozal announcement because it changed cash flow expectations immediately. Investors can live with cyclical weakness in commodity prices. They are less forgiving when an asset stops producing for reasons outside the orebody, especially power.

South32’s follow-up announcement in March, confirming Mozal had entered care and maintenance, kept that pressure alive. Still, the news was not all negative.

Worsley Alumina tonnes that had been supplied to Mozal can now be sold to third parties on index-linked terms. In plain English, South32 loses smelter output at Mozal, but it gains flexibility to place alumina into the market. That does not fully offset Mozal, but it does soften the hit and matters for earnings in the next few reporting periods.

Big tax hits are incoming 

The February half-year result helped steady the narrative. Profit after tax attributable to members rose to US$464m and underlying earnings to US$435m. Those numbers showed the group still has earnings power across its broader portfolio, even with one major problem asset dominating headlines.

South32 is a diversified mining and metals producer. It makes money from producing and selling alumina, aluminium, copper, manganese ore, zinc, lead, silver, gold and molybdenum from its operations and joint ventures, while also developing future mines.

The producing base includes Worsley Alumina, Brazil Alumina, Brazil Aluminium, Hillside Aluminium, Cannington, Sierra Gorda and its manganese businesses in Australia and South Africa. The growth engine sits mainly in Hermosa in Arizona, plus the Ambler Metals joint venture in Alaska and exploration options around Sierra Gorda and elsewhere.

That mix is why South32 keeps drawing investor attention despite cyclical pressure. The company is not just a mature bulk and aluminium producer. It is trying to reshape itself around copper, zinc, silver and battery-grade manganese, while retaining profitable legacy assets where economics still stack up.

Margins will decide the next move

The Cerro Matoso divestment, completed in December, is part of that story. It reduced portfolio complexity and removed a lower-priority asset. Investors tend to reward simplification when it makes the remaining business easier to understand and lifts average margins.

More important is Hermosa. South32 is constructing the Taylor deposit, a large zinc-lead-silver project, and progress there matters more to valuation than any short-term fluctuation in manganese shipments or quarterly costs.

The main shaft is expected to reach the first underground mining level in the third quarter of FY26, while the Final Environmental Impact Statement under FAST-41 is on track for the second half of FY26. If those milestones land on time and spending remains under control, confidence in the group’s medium-term growth profile should improve.

In our view, the single most important driver of South32’s current valuation is whether Hermosa can become the next major earnings pillar without blowing out on cost or timing. Mozal explains the near-term share price weakness, but Hermosa explains why the stock still carries strategic value.

How investors need to perceive the new story 

Investors need to separate structural developments from one-off events. Structurally, South32 is rotating toward base metals and critical minerals, extending mine life at Cannington, and building optionality at Sierra Gorda, Ambler and Catabela Northeast. Cannington’s Ore Reserve increase of 28% and mine life extension to FY33 is a meaningful long-term positive because it stretches cash generation from a key silver-zinc-lead asset.

Sierra Gorda is another genuine valuation support. South32 has copper exposure there, plus by-products, and a joint Final Investment Decision (FID) on a fourth grinding line is targeted for mid-CY26. If approved, throughput could rise by about 20%. That is not a small tweak. It would be a material increase in productive capacity from an asset already central to the copper case.

We think the market is trying to decide how much weight to put on each category. If investors focus only on the latest operational setback, the stock can look cheap for a reason. If they focus only on future metals and project inventory, they risk overlooking how easily miners can destroy value through delays and capex overruns.

The final call from here

For the stock to strengthen further, a few technical conditions need to be met. First, South32 needs to show that third-party alumina sales from Worsley can partly cushion the Mozal loss in a visible way.

Second, Hermosa milestones need to be achieved on schedule in H2 FY26, especially shaft progress, permitting and capex discipline. Third, Sierra Gorda needs to keep delivering, with more clarity around the fourth grinding line by mid-CY26.

If those things happen alongside firm copper, alumina and precious metals prices, we believe the stock can re-rate because the market will look through Mozal and focus on the earnings base that remains plus the growth pipeline.

We believe the asset base is stronger than the recent narrative, and the catalyst that can change the market’s view is steady, on-budget progress at Hermosa backed by continuing strength from Sierra Gorda and Cannington. In our opinion, the right call comes down to whether the core earnings driver is strengthening or weakening.