Aluminium announcement poses no local threat

NEWS of BHP Billiton’s decision to spin off its non-core assets including its Hillside and Mozal aluminium smelters in a new company (NewCo), was met with mixed reaction by local economists yesterday.

The world’s largest diversified mining company announced on Tuesday that it planned on creating an independent global metals and mining company based on a selection of its high-quality aluminium, manganese, nickel and silver assets including its local coal operation Billiton Energy Coal SA (BECSA).

With thousands of smelter employees in Richards Bay and Mozambique uncertain over the implications of such a demerger, the global conglomerate was quick to allay fears that there would be ‘minimal changes’ to operational employees as a result of the move.

BHP Billiton CEO, Andrew Mackenzie, said the decision was by no means a ‘divestment from South Africa’, but instead showed belief in the country’s future growth prospects.

He said about 9% of Billiton shareholders were South African and the company would keep its oil and gas exploration projects in South Africa.

NewCo’s new global shared services centre would be established in Johannesburg with a South African at the helm and is expected to create 200 high-quality jobs.

With more than one-third of its production expected to remain in South Africa, NewCo’s assets include South African coal, manganese and aluminium operations as well as alumina, aluminium, coal, manganese and silver assets in Australia, Brazil, Columbia and Mozambique.

Mackenzie said separating the businesses via a demerger had the potential to unlock shareholder value while enhancing asset performance and providing local investors with a significant new option.

Signal

However, local economist Clive Coetzee told the Zululand Observer that while it may have been a ‘rational business decision’, it did not ‘send a very pretty signal’.

‘It also depends on who will buy the new company and if they will ultimately build the company or not. It is obvious that BHP Billiton wanted to cut their losses and by disinvesting in South Africa, it is more like a vote of no-confidence.

‘With the country’s string of labour problems, this was somewhat of a subtle message from foreign investors,’ said Coetzee.

It has been widely speculated for some time that Billiton wanted to sell its coal mines and aluminium smelters in SA after it announced its planned focus on iron ore, copper, coal, petroleum and potash.