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Aluminum Smelting In South Africa Alusafs Hillside Project Case Solution

Solution Id Length Case Author Case Publisher
2144 510 Words (3 Pages) Kenneth Corts Harvard Business School : 799130
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Alusaf was tackling the decision to construct the world's largest greenfield primary aluminium smelter at Richard's Bay at the beginning of 1994. Due to the Russians and former Soviet states flooding the market with aluminium, the prices of aluminium had fallen to an all-time low. Even though a feasibility study for the Hillside project had been completed two years prior. 

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The political regime in South Africa had changed dramatically since then. The origins of this industry started way back in the 1940s with investments made by Alcan; they made the semi-fabrication capacity in the region to cater to the local market.  In 1989, the company Gencor who were the mining and metals giants acquired an interest in Alusaf. Besides Alusaf, a number of other companies were part of the aluminium industry either as scrap recyclers or as fabricators. This brought the total domestic production to about 200,000 tpy. In addition to that, the idea of Hillside had been around since 1991, when the electrical power utility named Escom started discussions with Alusaf. 

However, at the time of this discussion, the price of aluminium was about $1300 per ton. This is the primary reason that Alusaf was against the Hillside project back then. In lieu of this reluctance, Escom offered to reduce power rates significantly and also open up an additional plant near the Richard Bay one. The agreement between Escom and Alusaf protected Escom if the plant did not function at full capacity but did not offer any protection against the possibility of fluctuating prices. Alusaf had also contacted Pechiney, the French firm for all the basic engineering and technology for the plant.

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