Alusaf Hillside Project CASE ANALYSIS

The Alusaf Hillside case problem was one of the business cases that were addressed during our Analysis of Business Problem (ABP) class at the Lagos Business School. Today, we will be reflecting on the case problem.

Alusaf was the only principal aluminum producer in South Africa. It had a capacity of 170,000 tpy at the “Bayside” facility, which was in Richard’s Bay. In 1993, Alusaf reported earnings of $220.2 million, representing a 1% increase from the previous year. The revenue reached $8.6 million, which is a 122% increase from 1992. Because of its high strength and low weight, aluminum was an extremely useful metal in a broad variety of different fields of endeavor. When aluminum was used instead of steel in most applications, there was a fifty percent reduction in weight with no appreciable decrease in strength.

Since the passage of the Transitional Executive Council (TEC) Bill in 1993, South Africa’s political system had been subjected to a profound adjustment by the time 1994 rolled around. This measure stripped white people of their ability to exercise absolute power and established a multiracial body that would share responsibility for organizing and supervising the general elections that were scheduled to take place in April 1994. Because of this, several nations and international organizations have begun to explore the possibility of reestablishing commercial ties with South Africa.

Amid uncertain market conditions, the company Alusaf was contemplating constructing the world’s largest greenfield primary aluminum smelter at Richard’s Bay. This facility would have a capacity of 466,000 tons of aluminum per year.

Implementation of the Alusaf Hillside project with the goal of making it economically viable considering the current market circumstances is the objective.

Alternatives:

These are the following alternatives opened to the Management of Alusaf:

1. To put the Hillside initiative into action.

2. To abandon the Hillside enterprise and move on.

Consequences            

To put the Hillside initiative into action.

• Aluminum prices are very close to reaching their all-time low in real terms, which they reached in 1994.
•  There is a general manufacturing glut on the market that is greater than 1.5 million tons.
• A reduction in production because of producing businesses signing a memorandum of understanding.
•  The ability to reduce the gap in imported aluminum and increase aluminum exports.

To abandon the Hillside project’s implementation.

• A decrease in revenue because of an excessive amount of output
• The price of aluminum is getting close to an all-time low, which will have an effect on their sales revenue.
• It is challenging to optimize the production of smelters.

Recommendation

Because this will result in a net margin for the business, I will suggest that Alusaf get started on the Hillside project using the pricing regime. When compared to the market reality price of $1,110 per ton, the suggested prices of $1,300 per ton will result in a net margin of 31%, while the market reality price will result in a net margin of 26%.

Justification:

• An increase in the company’s net profit
• Capability of estimating the fundamental costs of manufacturing, which (for Power and Alumina) come in at 41%

Exhibit 1

Exhibit 2

Until next week when we will be considering another reflection on my learnings at LBS, have a great week ahead.

Wale