Comalco profit leaps as aluminium booms

Press, 11 July 1989, Page 28

Comalco profit leaps as aluminium booms

PA Wellington Booming world aluminium prices led to an 87 'per cent jump in tax-paid profit made on the New Zealand activities of the Tiwai smelter owner, Comalco, last year. The profit was $173,040,000, compared to $92,570,000 in the year to December 31, 1988. The figures were given in the first annual report of Comalco New Zealand, a full subsidiary of Comalco of Australia. The New Zealand company, set up from July 1 last year, owns 79.3 per cent of the smelter. Prices received for aluminium averaged $U52367 (sAust4loo) a tonne during 1988, up 54 per cent on the 1987 average and 94 per cent on the average during the years 1981-86, the chairman of Comalco N.Z., Mr Mark Rayner, said in the report. Last year showed the highest level of profitability on Comalco’s New Zealand operation since the smelter started in 1971, Mr Rayner said. The operation accumulated losses of $68.6M in 1981-86, due to low aluminium prices. The 1988 profit included first-half earnings on the operation made by Comalco, and those re-

corded by the new subsidiary from July. The latter came to S76M after tax. A long-awaited turnaround in Comalco’s New Zealand performance came early in 1987 and gathered strength into 1988, Mr Rayner said. “Metal prices rose strongly and profits were boosted to more respectable levels. The profits were committed to debt repayment and to better returns to shareholders,” he said. The report showed the New Zealand operation posted an after-tax loss of $18,188,000 in 1986 and one of $24,772,000 in 1985. Mr Rayner said an average annual return on shareholders’ funds over the last five years was just 10 per cent, well under expectations at the time Comalco made its original investment in this country. A 450% power-price increase forced on the smelter owners in 1977 was the most damaging factor on its profitability, he added. Sumitomo Chemical Company of Japan is Comalco N.Z.’s partner in the smelter, owning the other 20.64% of New Zealand Aluminium Smelters. The parent company, Comalco, is 67% owned by the Australian resource

group, CRA. The manager of Comalco N.Z., Kerry McDonald, said yesterday he was optimistic the company would reach agreement with the Electricity Corporation by the end of 1989 on the terms of long-term power supply to the smelter. Investment decisions at Tiwai Point, including a possible fourth potline costing as much as S4OOM, hinged on present negotiations, Mr McDonald told reporters at a briefing on the annual report. Comalco’s preferred option was to take part ownership of the Manapouri power project — originally built to supply the smelter — as part of a new agreement on the price of power, he added. Comalco had proposed taking a 20% stake in a new Manapouri power company, with Sumitomo taking another 5%, Electricorp taking 25% and the remaining 50% being sold to the public. If private ownership of the power scheme emerged as a sensitive issue, Comalco was prepared to see the asset pass back into Crown hands at some time in the future, he added. On the other hand, resolution of the supply issue would clear the way for

delayed investment of about SIOOM on upgrading the smelter to take place. Comalco also could make decisions on adding a fourth potline to the smelter, perhaps using completely new technology, at a cost of about S4OOM. If investment on that scale was to be undertaken, the smelter owners would need to be assured that power pricing would be “on a satisfactory basis” for at least 25 years, Mr McDonald said. Comalco had done some economic appraisal on the benefits of a fourth potline. “So far they have been pretty encouraging.” Mr McDonald said aluminium prices were forecast to level off in the short term and decline later, indicating that improving the smelter’s efficiency was the key to improving longer-term performance. Reviewing the 1988 result, he said sales for the year were about S9OOM. The New Zealand company paid tax in the second half of S37M. At December 31, the company had assets of $927M and shareholders’ funds of $452M. The report showed production in 1988 was a record 257,006 tonnes, up 3.4 per cent from the previous year.