BHPB's SA smelter at risk as sales fall

BHP Billiton said on Friday the financial viability of its Bayside aluminium smelter in South Africa was at risk following a sharp fall in demand for its products owing to the global downturn. The world's biggest mining company said the Bayside plant -- one of BHP's three southern Africa aluminium smelters -- had stopped supply contracts with some customers, and was exploring options to restructure the plant to keep it running. Bayside has been operating at around 50% of its production capacity after power rationing due to a power crunch in South Africa. The global financial crisis worsened matters. "The smelter has experienced a sharp decline in the domestic demand for its value-add products resulting in the termination of certain customer supply contracts," London-based company spokeswoman Bronwyn Wilkinson said. "Consequently the financial viability of the smelter is at risk." Aluminium sales from Bayside fell 50% to 74,000t in the nine months to March this year compared with the same period last year. Output fell 46.7% in the period. Ms Wilkinson said Bayside's management would talk to unions and employees who may be affected during the restructuring. "BHP Billiton is exploring various options relating to the restructuring of the Bayside smelter to ensure the long-term sustainability of the operation," Ms Wilkinson said. "We will also engage with customers to explore options regarding an alternative supply of products to the domestic market." Union officials were not immediately available to comment. Output from the company's Hillside smelter in South Africa and the Mozal smelter in Mozambique, in which BHP has a 47.1% stake, was also affected by the power shortage. The global slowdown has hit South Africa, placing thousands of jobs on the line, mostly in the mining and car sectors. BHP said this week its global aluminium production for the March quarter fell 4% to 304,000t compared with the same period last year. Production for the financial year so far is down 7% at 923,000t. BHP has said the medium-term market conditions remained uncertain and all its global operations were under review. On Wednesday, BHP reported declines in the production of copper, iron ore and aluminium, and the company said it was ready to halt operations as demand weakened. One of Bayside's biggest customers, South Africa's Hulamin Ltd , which makes semi-fabricated aluminium, said on Thursday it was in discussions with BHP, and the full impact of those talks might affect its shares. Hulamin said it had experienced a "severe contraction" in business in the latter part of 2008 and early 2009, which had sharply reduced its sales volumes and earnings.