UPDATE: BHP Decides Not To Proceed With Congo Aluminum Smelter

LONDON Feb 16, 2012 (Dow Jones) -- Mining titan BHP Billiton Ltd (BHP) has decided not to proceed with development of a aluminum smelter project in the Congo given expectations that profitability in the aluminum market is in a structural decline.

"BHP Billiton was in the very early stages of studying a potential aluminum smelter project in [the Congo] that would draw power from the proposed...Inga 3 hydro electric project," Ruban Yogarajah said in an emailed statement. "The company has decided not to proceed with the potential smelter project following a review of its economics."

BHP's chief executive Marius Kloppers said last week that he has instructed his executives to minimize spend on its aluminum business and keep the aluminum assets in a net-cash generation position but the company should spend more capital on aluminum than required.

"I would say that our view is that aluminum has had a structural profitability downturn, as opposed to a cyclical profitability downturn, and that probably makes us a little bit more comfortable in saying more definitely that we, at this stage certainly, do not want to allocate more capital to this sector," Kloppers told journalists in a call last week.

The benchmark London Metal Exchange aluminum price for delivery in three months is down 36% at $2,163.75 a metric ton since from its all time high hit in July 2008.

The aluminum market is struggling due weaker demand stemming from uncertainty about the global economy and fast expansion of Chinese smelter production capacity. Rio Tinto PLC (RIO), which acquired Canadian aluminum company Alcan for $38 billion at the top of the market, reported $9.29 billion in impairment charges last week for 2011, mainly against the value of the company's aluminum business.

Rio is in the process of restructuring its aluminum business and has put 13 aluminum businesses up for sale as a result.

BHP has interests in four aluminum smelters, two refineries, and two bauxite mines spread between Australia, Brazil, South Africa and Mozambique.

BHP's aluminum business generated $2.56 billion in sales during the first half of the fiscal year ending June 30, 2012 and accounted for 7% of the group's total revenue of $37.5 billion during period. It was BHP's only division to post a negative underlying earnings before interest and taxes or Ebit during the period.