Caso Alusaf´S

For the exclusive use of E. DAVILA

9-799-130
REV: MARCH 11, 2002

KENNETH S. CORTS

Aluminum Smelting in South Africa: Alusaf's
Hillside Project
At the beginning of 1994, Alusaf was considering building the world’s largest greenfield primary
aluminum smelter, a 466,000-ton-per-year smelter at Richard’s Bay, a deepwater port on the east
coast of South Africa’s province of Kwa-ZuluNatal. Alusaf was the sole primary aluminum
producer in South Africa, operating 170,000 tpy of capacity at the existing “Bayside” facility at
Richard’s Bay. Alusaf’s 1993 revenues were $220.2 million, up 1% from 1992. Income was $8.6
million, up 122% from 1992.
A feasibility study for the proposed “Hillside” smelter had been completed over the past two
years. During this time, South Africa’spolitical regime had undergone a dramatic transformation
with the 1993 passing of the Transitional Executive Council (TEC) Bill. This bill removed absolute
power from the hands of whites and created a multi-racial body that would share responsibility for
organizing and overseeing the general elections to be held in April 1994. Within days, Nelson
Mandela, leader of the African National Congressparty, addressed the UN Special Committee
Against Apartheid in New York, calling on the international community to lift sanctions against
South Africa. The European Union, the Organization of African Unity, Canada, China, Sweden,
Singapore, India, and the United States all responded quickly with announcements that they would
begin the process of restoring normal economic relations with SouthAfrica.
Aluminum prices had fallen dramatically since the feasibility study was begun, as Russian
aluminum continued to flood the market. Now, with aluminum prices near their all-time low in real
terms in early 1994, Alusaf had to decide whether to embark on this massive project.

The South African Aluminum Industry
The South African aluminum industry’s origins could be traced to investmentsmade by Alcan in
the 1940s. As part of its efforts to create demand for its ingot, Alcan built semifabrication capacity in
South Africa to serve the local market.
A government-coordinated development effort at the port of Richard’s Bay, together with a desire
to reduce dependence on imported ingot, led to construction of South Africa’s first primary
production facility nearly 25 years later.The original Bayside plant came onstream in 1972 with
________________________________________________________________________________________________________________
Professor Kenneth S. Corts prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an
administrative situation.
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This document is authorized for use only by Edgar Davila in Econom?a para la Toma de Decisiones taught by
ALFREDO GONZALEZ CAMBERO from January 2010 to July 2010.

For the exclusive use of E. DAVILA
799-130

Aluminum Smelting in South Africa: Alusaf's Hillside Project

capacity of approximately 85,000 tpy. Less than a quarter of Bayside’sproduction was exported. Ten
years later, the Bayside plant was expanded through the relocation to Richard’s Bay of a similarly
sized plant in Niigata, Japan, that had been shut down due to escalating energy costs. Over three
quarters of the new plant’s production was exported as ingot.

In 1989, South African mining and metals giant Gencor acquired a controlling interest in Alusaf.
The...