Power-supply deal critical to Hulamin’s continued viabilty
Aluminium semi-fabricator and exporter Hulamin says it will be robbed of its only supply of the metal if global resources group South32 cannot secure a good power-supply deal for its Hillside smelter from Eskom.
“We owe our existence to the fact that we buy aluminium from the Hillside smelter. If Hillside were to close, that would mean hardship for Hulamin and its employees. We need a domestic supply of aluminium,” Hulamin CEO Richard Jacob said on Tuesday.
According to South32, there was a disagreement between the company and Eskom over the expiry date of its supply contract. The parties have agreed to negotiate a new power deal. Historically the contract has been favourable to South32 and has largely insulated it from price hikes.
South32 CEO Graham Kerr said in February the conclusion of the contract with Eskom was crucial to the miner’s future. He said at the time the smelter, which is entirely owned by South32, needed a good power contract to be sustainable.
The Hillside smelter supplies primary aluminium to Hulamin, which manufactures a variety of value-added aluminium-based products and materials for the local market and exports.
Jacob said Hulamin is watching the developments around the power-supply contract with keen interest.
In its results for the year to end-December, Hulamin said it had reduced the value of some of its assets by a combined R1.5bn, despite achieving record sales volumes in 2018.
The company said its weighted average cost of capital had increased amid mounting uncertainty and risk in the trading environment, and this resulted in “material changes to the valuation of assets”.
The group said an impairment charge of R1.4bn had been applied to its Hulamin rolled products unit, and R74m to Hulamin Extrusions, whose performance “remained unacceptable in extremely challenging trading conditions”.
“The group has commenced a strategic review of its investment portfolio, including its interest in Hulamin Extrusions,” it said.
But excluding the impairments, normalised earnings per share were up 20% at 77c, with the bulk of profits being generated in the second half, Hulamin said.
This was “another exceptional operational year” for Hulamin Rolled Products, said Jacob. Thanks partly to the weaker rand, Hulamin produced “record profits, sales and production” in the second half of 2018, he said.
Hulamin said it plans to return R120m to shareholders. It is launching a R60m share buyback programme, and increased its dividend 20% to 18c a share.
Meanwhile, the group said the long-term outlook for aluminium beverage packaging demand had improved “significantly” since 2017.
“This follows the steps being taken by more than 16 major countries and cities to ban single-use plastics in packaging, including the UK, France, Germany and Canada. As a result, a number of Hulamin customers are seeking larger volumes and longer-term can stock contracts on firmer prices.”
Hulamin said it would launch an agency and technical-service trading business to resell a major aluminium rolling mill’s can stock products to its own customers. This would boost sales revenues, profitability and cash flows.
“Trade relations between the US and China remain uncertain. There are also signs of a cyclical slowdown in US aluminium manufacturing, driven partially by the slowing of aerospace build rates. Hulamin has consequently increased its efforts in its other markets, such as Europe, Australasia, Africa and South America, to minimise these effects.”