BHP Billiton is planning to pull the plug on smelting activities at its Bayside smelter in Richards Bay amid a review of the struggling operation.

“As part of that process, BHP Billiton today began a formal consultation with employees in its aluminium South Africa business on a proposal to cease smelting activities and associated services at Bayside,” Lulu Letlape, the vice-president for communication and external affairs at BHP Billiton, said yesterday.

“Our aim is to minimise the impact of any changes on employees and the local downstream industry.”

Operations at the casthouse, where liquid metal can be cast in a variety of forms, within Bayside would continue with supply from BHP Billiton’s neighbouring Hillside smelter while the company assessed its future, Letlape said.

The National Union of Metalworkers of SA, which represents the majority of unionised workers at the Bayside operation, was not available for comment yesterday.

The BHP Billiton-owned Bayside and Hillside smelters are Richards Bay’s biggest employers, with Hillside being the largest aluminium smelter in the southern hemisphere, according to the company’s website. Bayside employed 450 people and Hillside employed 1 900 people, Letlape said.

The restructuring comes amid speculation that Hulamin, a Pietermaritzburg-based manufacturer of rolled aluminium products, intends to purchase the smelter.

Neither Hulamin nor Letlape could confirm the sale. They said since Hulamin sourced a third of its rolling slab requirements from BHP Billiton, the company was talking with Hulamin.

Hulamin said yesterday that it had “entered into negotiations with BHP Billiton South Africa over the future of slab supply from the Bayside casthouse”.

Hulamin warned shareholders that the negotiations could affect the share price.

BHP Billiton undertook a review of Bayside, its oldest smelter in South Africa, in September 2012 to explore various options to dispose of the operation because of low aluminium prices and increasing production in China.

The aluminium industry is under immense pressure, as prices declined 6 percent last year amid subdued demand.

Transnet was reported last year to have said that it wanted to buy Bayside’s land to stockpile coal as part of its bid to establish a coal export terminal for empowerment coal producers in the Richards Bay port.

The economy of Richards Bay and surrounding areas would be adversely affected should lay-offs be necessary due to a reduction in the operation of the Bayside smelter, said Charmayne Pountney, the executive manager at the Zululand Chamber of Commerce and Industry.

“Ultimately we will need to brace ourselves for an increase of job seekers in the market and increase in the number of service providers (contractors) who will be vying for work across the industry as a whole,” Pountney said.

Bayside has closed two potlines since 2009, reducing its smelting capacity to 97 000 tons, amid the electricity crisis. Eskom signed a 25-year special pricing arrangement with Hillside for potlines 1 and 2, which expires in 2020.

BHP Billiton leapt 3.67 percent to close at R331.04 on the JSE yesterday, while Hulamin fell 4.47 percent to R6.20.