President of the group's aluminium division, Alex Vanselow, told analysts and journalists that feasibility studies for the expansion, expected to come on stream in 2009, had been completed, but that final board approval was pending the outcome of negotiations on long-term power-supply contracts with Eskom and the Mozambican government.
He said that BHP Billiton would negotiate for prices that would enable all the stakeholders to achieve satisfactory margins.
The South African government this year indicated that it was uncomfortable with embedded derivate exposure across all of its State-owned enterprises and has said it will support Eskom in its bid to restructure and, where possible, move away from commodity-linked electricity-tariff agreements.
The commodity-linked pricing system was responsible for attracting large aluminium-smelting investments to Southern Africa, including the Hillside smelter, in Richards Bay, and Mozal, located near Maputo.
Eskom is currently also negotiating prices with Canadian firm Alcan, for its long-awaited smelter at the Coega Industrial Development Zone, on the outskirts of Port Elizabeth.
BHP Billiton previously indicated that a further 500 MW of power would be required after the expansion, in addition to the 900 MW already consumed at Mozal.
Should it go ahead, Mozal 3, would add an extra 250 000 t of aluminium ingots a year to the smelter's production, through the construction of a new potline, bringing Mozal's total production to about 800 000 t/y.
Vanselow declined to provide a cost estimate for the project.
BHP Billiton has a 47% stake in Mozal, Japan's Mitsubishi 25%, South African funding parastatal Industrial Development Corporation 24% and the Mozambican government 4%.
The first phase of the smelter was completed in 2000, at a cost of $1,220-billion, which took the smelter to 253 000 t/y and the second phase (Mozal 2) increased capacity to 506 000 t/y at a cost of $665-million in 2003.
Mozal generated record production figures of 551 000 t for the 2005 financial year, owing to 'benchmark' performance from the AP30 technology employed at the smelter, Southern Africa aluminium COO Xolani Mkhwanazi said.
Markets to remain 'tightly balanced'
Both aluminium and alumina are expected to remain in a supply deficit, at least for another two years, aluminium marketing director Julius Matthys said.
He added that alumina supply would remain tight next year but should expand in 2007.
"The market is extremely tight and utilisation rates are basically at 100%.”
"Through the whole of 2006 utilisation rates will stay at extremely high levels, effectively 100% capacity.
"In 2007, our view is that it will remain tight but it won't remain as high a utilisation as it is today," Matthys said.
He cautioned that aluminium-demand growth has proved 'inelastic' to changes in prices and remains well above global GDP growth figures.
The group estimates that some 2-million tons a year of aluminium production capacity is currently idle in China, owing to power constraints in that country.
While cash costs for the production of both alumina and aluninium have edged upwards over the last few years, BHP Billiton's relative position has remained unchanged, strategy vice-president Rod Kinkead Weekes added.
He also emphasised that, seen in context of the greater BHP Billiton investment portfolio, the aluminium business is under no pressure to make large investments, and will therefore only commit to, ”large, long-life and low-cost” growth projects.