Billiton buys Worsley alumina refinery for £1bn

Billiton, the mining company, yesterday announced its second big acquisition in four days, increasing its stake in an Australian alumina refinery for $1.49bn (£1bn).

Billiton, the mining company, yesterday announced its second big acquisition in four days, increasing its stake in an Australian alumina refinery for $1.49bn (£1bn).

The group announced that it would be raising $750m, mostly by issuing new shares, to help finance the deal. It also reported a 45 per cent jump in net profit to $837m for the year to 30 June, boosted by strong aluminium and nickel prices.

Brian Gilbertson, chairman and chief executive of Billiton, said: "We now have the world's premier upstream aluminium portfolio. They may be bigger ones around but there ain't no better ones." The news followed Billiton's $1.2bn recommended bid, announced on Friday, for Rio Algom, a Canadian copper producer. Billiton shares reacted poorly to the series of announcements and it was the biggest faller among FTSE 100 stocks yesterday. The shares dropped 30p to 270p, as 20.3m changed hands.

Martin Potts, an analyst at Williams de Broe, said: "With these two deals, Billiton started looking a little stretched and then we have the issue of new shares too. It just all came at once and investors dumped the stock. In the longer term, both deals make sense, although in the shorter term, they may look a bit pricey."

The mining giant said yesterday that it had bought 56 per cent of Worsley, the alumina refinery and mine, from Alcoa, the US aluminium group. This takes Billiton's stake in the western Australian refinery to 86 per cent, although it said it may sell on 18 per cent of the stake to its Japanese partners.

The refinery, which produces alumina, the base material for making aluminium, is considered to be one of the world's most efficient plants. The alumina will be fed to Billiton's smelters, in Mozambique and South Africa, which will turn it into aluminium.

The company said the price paid for Worsley was equal to about $850 for each tonne of production, well below the $1,000 it would cost to build an alumina refinery from scratch. It said Worsley's production costs per tonne were less than $100 and would fall towards $80 in 2000/01 as output rose. Alumina currently sells at $180 a tonne.

Billiton said it would now slow down expenditure on large acquisitions and other projects over the next three or four years but it still planned to spend a further $1.9bn over that time. The new shares to be issued, to pay for Worsley, will be marketed through a book-building exercise to be completed by mid September.