Billiton's accounting hiding losses

Aug 21 2013 14:27


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Johannesburg - BHP Billiton [JSE:BIL] has probably changed the format of its financial reporting to hide the huge losses made by its controversial aluminium smelters in Richards Bay and Maputo, reported Sake24.

Billiton announced its results for the year ended June 2013 on Tuesday.

The results of its alunimium operations, its nickel mining operations in Australia and its manganese operations, were combined this time.

The latter two divisions had both made profits during the previous financial year.

The aluminium division of Billiton has been buying huge amounts of electricity from Eskom since 1995 without any price increase.

In June 2013 two Billiton energy-gobbling aluminium smelters were even temporarily turned off by Eskom one evening, because demand for electricity exceeded availability.

In 2012 Billiton's aluminium division has made a loss of about R2.4bn at the exchange rate when it was reported.

Together, however, the three divisions show underlying earnings before tax and interest (EBIT) of $164m.

The stronger US dollar in the second half of the financial year and a slight increase of 2% in aluminium production probably eased the losses somewhat.

Marius Kloppers, former CEO of BHP Billiton, said in February that the marginal cost of aluminium production will be higher than its price until at least 2018.

Although the demand for aluminium is increasing sharply, new production capacity increases even faster, according to Kloppers.

That is mainly due to electricity in certain provinces in China being very cheap and new plants being built very quickly to meet the demand.

An Eskom/Billiton power deal came into the spotlight after Fin24’s sister publication Sake24 won a lengthy legal battle in March 2013 that compelled the global mining giant to make public the prices it pays Eskom for electricity.

It emerged that Eskom sells 9% of its electricity to Billiton’s two aluminium smelters at less than one-fifth of the tariff paid by other consumers.

The preferential tariffs for the two smelters, Hillside in Richards Bay and Mozal in Maputo, enable the two loss-making smelters to be sustained while the rest of the country’s consumers, both household and industrial, pay much higher electricity prices.

The investigation which Nersa is doing into the difference in tariffs, was supposed to lead to a public meeting in May. It now looks like it will probably not happen before November.

Billiton is apparently objecting to the publication of certain information needed by Nersa to hold such a public meeting.

- Fin24

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nersa  |  bhp billiton  |  aluminium  |  mining



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