African Business’ Stephen Williams attended the official opening of one of Africa’s most ambitious industrial projects, the Mozal alluminium smelter in Mozambique.

The official inauguration of the Mozal Aluminium Smelter by Joaquim Chissano, the Mozambican President, took place on September 21. It celebrated the completion of the first phase of this ambitious $1.34bn private and public sector partnership project that is anticipated will spur economic development both in Mozambique and the southern African region in general.

Built using France’s Pechiney AP30 technology and virtually a duplicate of Billiton’s Hillside smelter in South Africa, the first aluminium ingots were produced last June - 25 months after the start of the plant’s construction - some six months ahead of schedule and $100m below budget.

Celebrations at the greenfield smelter site outside Maputo were both refreshingly informal and notably upbeat. As SADC heads of state, Mozal investors, partners and contractors gathered to pay tribute to a remarkable engineering and managerial achievement, the underlying sentiment was that Mozal was an example of how co-operation and goodwill between African states and multinational corporations, coupled with sound economic principals, can create a platform for industrial growth and development.

Gigantic proportions

To construct Mozal required some 24,000 tons of steel (enough for three Eiffel towers), over 200,000sq metres of aluminium cladding, 235 cubic metres of concrete and 800kms of cabling.

Essentially, Mozal harnesses one of southern Africa’s most plentiful assets - generated energy. Aluminium smelting requires vast and reliably continuous amounts of electricity, and to supply Mozal, two power lines of 400,000 volts each were constructed by a new consortium, Motraco, made up of the electricity authorities of Mozambique, South Africa and Swaziland and funded through loans provided by the Japan Bank for International Cooperation and the European Investment Bank

Mozal, at full production, will use approximately twice the current power consumption of the whole of Mozambique. In return, Mozal (phase 1) will produce 250,000 tons of primary aluminium a year, provide over $400m in foreign exchange earnings and add some 7% to Mozambique’s gross domestic product. Mozal (phase 2) can potentially double this output, but a final decision to proceed with this phase will not be taken until late next year when the existing Mozal plant reaches full production capacity.

Billiton (UK) plc, formerly a South African company but now listed on the London Stock Exchange, is the major shareholder in Mozal with a $250m/47% stake, Mitsubishi Corporation of Japan owns 25%, The Industrial Development Corporation of South Africa owns 24% with the Mozambican government holding the remaining 4%.

The British government, through its soon to be privatised emerging markets investment arm, CDC group plc, is also a significant investor with a $50m quasi-equity holding. It also provided a $5m senior loan facility.

It requires around 5.3 tons of bauxite to produce one ton of refined aluminium. While there is rumoured to be important bauxite deposits in Mozambique, these have yet to be identified or exploited. In order to secure a plentiful supply of bauxite/alumina, Billiton moved to increase its stake in the Worsley alumina refinery in Western Australia. Shipments of alumina reach a pupose-built six hectare port facility at Matola, 20km west of Maputo. It and the Beluluane Industrial Park where the smelter is located is linked by 25km of new roads and a new bridge over the Matola River, which also provides access to the Maputo-Witbank development corridor linking Mozambique with South Africa and Swaziland.

During feasibility studies for this new smelter, two major problems needed to be addressed. The first was the issue of land ownership in Mozambique. All land under the current Mozambique constitution is owned by the state, and this fact might have undermined investor confidence from the outset, but with the wholehearted support of the Mozambique government and its willingness to invest in the venture, this problem was resolved to the satisfaction of all parties.

The other major problem was the logistics of supplying some 600,000 tons of raw materials each year through the port facility. Fully laden bulk carriers, the only economically viable means of transporting alumina from western Australia and petroleum coke from the US, would have too deep a draft to be able to access the port. So it was decided to combine shipments with the Hillside smelter. Fully laden ships arrive first at Richards Bay, off-load half their ore cargo for Hillside and proceed to Maputo where, riding higher in the water, they can off-load the remaining ore.

Mozal is working to overcome the problem of access by dredging its own port, Matola (fondly known as Maria after the Olympic 800m gold medal winner, Maria Matola) sufficiently to take in deep draft vessels.

Positive vibes with community

From the outset, Mozal has focused on developing a positive relationship with its host community, the Mozambican people. It saw the project as an ideal opportunity to initiate small business development, provide education and training, promote health issues and minimise the environmental impact of such a large industrial development. Mozal has also enthusiastically supported sporting and cultural programmes for the local community.

Resettlement of those people who previously lived on the site was completed following the strictest World Bank standards and generous compensation packages were provided. The company also established 700 hectares of new farmland and 80 new homes in a newly built village.

Over 9,000 people, 65% of them were Mozambicans, were employed during Mozal’s construction phase. The company allocated nearly $3.5m for training around 5,500 people in skills such as brick-laying and welding, substantially increasing the skills base of the local community.

Today, post-construction, the smelter employs some 750 people, 89% of whom are Mozambicans, within the site fence - although Brian Gilbertson, Billiton’s chairman, estimates that the plant probably provides some 3,000 jobs if you add in local supplier contracts.

For Billiton’s corporate partner Mitsubishi, Mozal represents a vote of confidence in Mozambique and Africa in general. This is welcome news for the continent, which has seen inward flows of FDI remain stagnant over the past two years according to the latest figures from the UN Conference on Trade and Industry. These figures show that of the $800bn of global FDI flows last year, Africa only attracted some $l0bn.

As Mikio Sasaki, Mitsubishi’s chairman, put it ?The success of Mozal demonstrates that the country is investor friendly.? He took the decision to invest some $130m in Mozal soon after he became the chairman of the giant Japanese industrial corporation, and it must be of enormous personal satisfaction that he guided Mitsubishi Corporation to partner one of Africa’s boldest economic initiatives. Although Billiton has yet to decide whether to proceed with Mozal’s second phase, Mr Sasaki has expressed Mitsubishi’s ?keen interest? to invest in Mozal 2.

Obviously, Mozal’s profitability hinges on the market price for the base metal. Even though US giant Alcoa, the world’s leading aluminium producer, released a profits warning just prior to Mozal’s inauguration (principally because of higher energy costs), Mozal saw no reason to follow suit and the markets tended to agree.

Billiton’s share price remained steady as analysts recognised that southern Africa’s energy costs would not have to rise in line with oil prices in quite the same way. And in the long term, Mozambique’s vast offshore natural gas deposits could well complement the ample hydro-electric capacity of the Cahora Bassa dam, a key supply to the Motraco consortium. The Cahora Bassa dam, the fifth largest in the world, can at full capacity supply over 3.5m kilowatts from its five giant turbines.

Prices for base metals have been volatile but risen strongly over the past year thanks to strong global economic growth. But even if the surge in oil prices were to impact continuing global growth, demand for aluminium with its twin attributes of strength and light weight should increase - particularly in the transport sector as automotive manufacturers strive to attain improved fuel efficiency.

Another principal competitive advantage of Mozal’s Mozambican location is that unlike Alcoa’s North American smelter outputs, Mozal’s is exempt from the EU’s 6% duty on aluminium imports.

Mozal’s focus on the ?triple bottom line’ principle - its responsibility to shareholders to make a profit, the community to promote sustainable development, and to protect the environment - is an enlightened management approach and good business. It’s also a shining example, as shining as an aluminium ingot itself, of how business can create virtuous circles to power Africa’s renaissance.

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