Guinea’s Sovereign Risk Issues Among Reasons BHP Billiton Calls Halt to Alumina Mine
BHP calls a halt to Guinea alumina mine
September 10, 2011
BHP BILLITON is spending money hand over fist expanding its global production capacity. But the big spending ceases when it comes to an alumina project in Guinea, where the company and its Canadian and Middle Eastern partners have all but stopped a $US5.2 billion ($4.9 billion) alumina project, despite having already spent more than $US700 million on preparatory works.
The group’s recent June year profit report confirmed that a decision on a project go-ahead has been officially deferred, with the financial report restating a charge against earnings taken in 2009 for the deferral when the worst effects of the global financial crisis were still playing out.
That BHP has yet to fire up the project has raised questions about the group’s willingness to deal with Guinea’s sovereign risk issues as much as it has about BHP’s long-term commitment to its aluminium division. The division was the runt of the litter in BHP’s record-breaking June year profit of $US21.6 billion. Underlying earnings before interest and tax from the division was a paltry $US266 million, down by $US140 million on the previous year. The contribution was the smallest of any division and was despite the benefit of higher alumina/aluminium prices.
Guinea in the meantime has its own challenges and analysts consider it is more likely that sovereign risk issues, more than anything else, have prompted BHP’s softly, softly approach in the country.
The political situation remains tense in the West African nation following the election last November of President Alpha Conde. His election ended military rule in the country but tensions continue.
Despite the sovereign risk issues that come from operating in the country, BHP’s Canadian partner in the deferred Sangaredi alumina project, Global Alumina, last year tipped that the project would be given the go-ahead at the end of 2010. Ownership of the project is BHP (33.33 per cent), Global (33.33 per cent per cent), Dubai Aluminium (25 per cent) and the Abu Dhabi state-owned Mubadala (8.33 per cent).
While at present deferred, work on the project has been extensive and has included the moving of two villages from the bauxite lease, the building of roads, the clearing of the site for the alumina refinery and export port upgrade work.
BHP said it remained ”supportive” of the Guinean development.