BHP to say goodbye to smelters

2014-08-17 15:00

Mining giant BHP Billiton is set to divest itself of its controversial aluminium smelters in Richards Bay and Mozambique, as well as other South African assets, as part of a portfolio “simplification”.

The final details will most likely be announced next week after a board meeting, the group said in a statement on Friday.

It has been widely speculated that the world’s largest mining company wanted to pull out of South Africa entirely, but this is the first explicit confirmation that many of its local assets will go.

Billiton says it would prefer a “demerger” – which would involve separating the unwanted assets into a separate company that could be listed itself. Apart from the Hillside, Bayside and Mozal aluminium smelters, Billiton will most likely get rid of its 60% stake in Samancor Holdings, which in turn owns Hotazel manganese mines and Metalloys.

According to Friday’s announcement, Billiton will retain its “major” coal assets, which may or may not include its three huge local coal mines. These mines contribute about 13% to South Africa’s total annual coal production of 260?million tons.

The group’s coal operations are in essence split between a metallurgical coal operation in Australia and a lower-value thermal operation in South Africa.

Samancor, of which Anglo American owns the other 40%, produces more than a third of South Africa’s manganese ore, about 3.5?million tons a year. Its Metalloys subsidiary produces 377?000 tons of manganese alloys.

The aluminium smelters have been a bitter bone of contention ever since the electricity crisis in 2008.

They use up to 7% of Eskom’s generating capacity but pay half the cost of generating that electricity because of a secretive contract signed when South Africa enjoyed an overabundance of power.

Whenever there is a shortage of power that could lead to load shedding, Eskom has the ability to cut off the smelters’ power supply without notice for short periods.

The contract ties the smelters’ electricity tariff to the aluminium price and has caused Eskom massive losses due to low aluminium prices that have prevailed since the economic crisis of 2009.

But Billiton has also suffered massive losses and in June this year closed the Bayside smelter.

The possibly imminent divestment from the smelters complicates an already winding saga.

In March this year, the National Energy Regulator of SA was about to start a long-delayed investigation into the contracts, following a 2012 application by Eskom to review them because they are unfair to other power users.

At the last minute, Billiton stopped the investigation by reopening direct talks with Eskom, as reported by City Press’ sister publication Rapport.

According to Eskom spokesperson Andrew Etzinger, the contracts are attached to the smelters and would go to whoever ends up owning them.

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