The company will pay Mitsubishi subsidiary MCA Metals Holding US$250 million, funded from cash on hand.
South32 had net cash of $553 million at August 31.
The acquisition boosts South32's stake from 47.1% to 72.1%.
The Industrial Development Corporation of South Africa holds 24%, while the Mozambique government holds 3.9% through preference shares.
The purchase price will be adjusted downwards if the IDC triggers its pre-emptive rights.
South32's increased stake will lift its group-wide annualised equity share of aluminium production by 15%, or 145,000 tonnes, to 1.13 million tonnes.
The company said the deal was accretive, with an acquisition multiple of 3.6x FY21 EBITDA.
"We have established a long operating track record at the Mozal Aluminium smelter in Mozambique over the past 20 years," South32 CEO Graham Kerr said.
"During this time, we have formed strong relationships with our workforce, the community, the Mozambican government and other key stakeholders.
"The smelter benefits from access to hydroelectric power and key export markets into Europe."
AP3XLE energy efficiency technology is being rolled out as part of the smelter's pot relining program, which is expected to deliver a circa 5% (or 10,000tpa) increase in annual production by FY24.
The smelter is expected to produce 273,000t of aluminium for the next two financial years.
"The smelter is an important customer for the alumina produced from our Worsley Alumina refinery and the transaction will further integrate that relationship in our supply chain," Kerr said.
"We are pleased to be able to increase our shareholding on value-accretive terms, with a transaction that we expect will deliver a strong return for our shareholders.
"We are also working with our partner at Alumar in Brazil to investigate a restart of the smelter using renewable energy. Both investments are consistent with our strategy to increase our exposure to the base metals required for the critical transition to a low carbon future."
South32 shares rose 2% to A$3.46, not far off the 52-week high of $3.52.
