Bayside smelter up for sale

2012-10-10 00:00

BHP Billiton Aluminium South Africa is anticipated to sell its Bayside Aluminium smelter, its oldest in southern Africa, as the market continues to be squeezed by diminishing returns and increasing cost pressures.

Pietermaritzburg-based Hulamin is seen as the most likely buyer of the operation.

BHP Billiton spokesperson Kesagee Nayager said they are assessing various options for the smelter.

“We have launched this review to assess all potential responses, including a potential sale of the operation. However, this process is at an early stage and no decisions have been made about the future of the plant. This review is only applicable to the Bayside smelter,” said Nayager.

She said this is part of a regular review of its business portfolio in the context of the company’s strategy of “owning and operating large, long-life, low-cost, expandable, upstream assets diversified by commodity, geography and market.

Although little is known on reasons for the sale, it is no secret that the aluminium industry is under severe pressure.

According to an article in the the Financial Times on Sunday, globally the industry has shrunk with the collective profits of the five biggest producers having fallen from $9,4 billion (R82,3 billion) five years ago to $2,4 billion last year, that the aluminium price at $2 100 a ton has remained largely unchanged since 1980 and it is the worst performing mined commodity according to the International Monetary Fund.

In a June production report BHP Billiton, which is the sixth largest producer of the metal, said “despite our competitive position on the cost curve, our integrated Aluminium business continues to be challenged by weaker prices and underlying cost pressure”.

Its aluminium business has been under consistent pressure compounded by the 2008 mandatory energy cuts as a result of the electricity crisis when Eskom’s grid became overloaded plunging the country into darkness.

Furthermore the aluminium smelters have been underperforming. The Zululand Fever reported in March that its Hillside smelter had its production severally disrupted when between 250 and 270 potlines, at a replacement value of R5 million each, seized up by March this year. This was followed by a large exodus of senior staff, most notably John Dudas, the former BHP Billiton Aluminium president. According to the June report operations are expected to progressively return to full technical capacity during the 2013 financial year.

Hulamin, a Johannesburg Securities Exchange-listed company, would not comment on a rumoured expression to buy.

The company markets and manufactures high quality rolled and extruded aluminium products.

Hulamin has had a tentative relationship with BHP Billiton over the last four years despite a history with the Bayside smelter stretching nearly 40 years.

Company corporate affairs manager Hector Molale said: “Hulamin has purchased rolling slab and previously, extrusion billet, from Bayside for close to 40 years. Hulamin remains engaged with BHP Billiton on the future supply of rolling slab from Bayside beyond December 2012, when the supply contract comes up for renewal.”

However, the rumour of Hulamin’s alleged interest to purchase had surfaced in 2009, the same year when BHP Billiton tried to terminate a contract with the former.

In the second quarter of 2009, Hulamin issued two cautionary announcements to its shareholders which arose from the notification by BHP Billiton that it intended to discontinue the supply of extrusion billet and rolling slab.

The notices were later withdrawn after an agreement was reached between the two parties.

Hulamin sources approximately 50% of its extrusion billet and 30% of its rolling slab from the Bayside cast house and produces the balance of its requirements in its own facilities.

According to BHP Billiton, Bayside is the only producer of value-added primary aluminium products in Southern Africa.

• In an unrelated sale in September, BHP Billiton completed the sale of its 37% non-operated interest in Richards Bay Minerals (RBM) to Rio Tinto for $1,91 billion.

The company said at the completion of the sale that the divestment from RBM is in line with their commitment to a simpler, more scalable upstream portfolio.

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