South32 unlikely to restart idled aluminium capacity in SA

Mining giant BHP Billion spin-off South32 indicated last week Thursday that it has no plan to restart idled capacity at its aluminium facilities in Southern Africa in the next couple of years. The Australian metals and mining company had idled the aforesaid capacity on being unable to cope with the mounting losses due to depressed aluminium prices and the rising uncertainty revolving around power supply in the region.

Graham Kerr, CEO South32 said that there were almost 24 idled pots at the Hillside aluminium smelter in Richards Bay, South Africa that stand ready to be brought back to operations. They have been relined and will be made to start production when the time is right.

Kerr said disruption in power supply in the Northern Cape has also dropped significantly to only about once in a period of two months now; earlier the frequency was much higher. Power being crucial to aluminium smelting this will help South32 in bringing idled capacity back to operations.

Prices also play a critical role in commodity business. Aluminium prices must hold its ground to support manufacturing at expanded capacity in the reopened facility, Kerr added.

Meanwhile, Malaysia brought new, relatively low-cost capacity online, which undercut South African capacity that is older and energy expensive.

Southern Africa contributed NZ$138 million to South32’s underlying earnings in the first five months of 2016 (against NZ$575 million in 2015). The company’s bottom line was largely impacted on by commodities market downturn and one-off costs. Nevertheless, it still managed to deliver on promises made at the time it was created out of BHP Billiton to reduce costs.

Till date, South32 has pared down controllable cost savings to NZ$386 million by increasing productivity, cutting supply chain related costs, and improving overall energy efficiency, thereby becoming self-reliant in running the entire operations with minimal help from outside consultants.

In the first five months of 2016, the firm delivered NZ$597 million of free cash flow and declared a dividend of US$0.01 per share.

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