A leading Inverness-based economist has raised questions over the future of GFG Alliance’s Lochaber smelter, with the owners having posted a pre-tax loss of £4m in a long-delayed set of accounts for the business.
Economist Tony Mackay said it was “very surprising” the accounts were not audited by registered accountants, although GFG said the publication of accounts for the year to end of March 31, 2021 was “an interim step”.
The publication of the annual figures at Companies House comes after the Financial Reporting Council (FRC) watchdog launched an investigation into King & King, which audited previously published accounts for Alvance British Aluminium, the registered name of the smelter operation.
And while accounts for the Fort William-based business have finally been published over 16 months late, documents have not yet been filed for Simec Lochaber Hydropower, the renewable power scheme nearby that feeds the smelter.
According to Companies House, these remain almost a year overdue which means the company is subject to paying fines.
Mr Mackay said it was likely GFG would seek to sell the smelter facility although this would be complicated due to its current difficulties in the wake of the collapse of its former lender Greensill Capital.
He said: “I believe it is certain some other company will take over the smelter from GFG Alliance but it is difficult to know when that will happen.
“GFG will obviously hope to get money from any sale/transfer but I think that is unlikely given the doubts over their parent company’s financial future.
“The transfer will also need the agreement of Highlands and Islands Enterprise (HIE) and the Scottish government because of their loan guarantees.
“I believe strongly the aluminium smelter has a profitable future in Fort William but this fiasco has generated a lot of bad publicity for the local area, HIE and the Scottish government.”
£586m Scottish government guarantee
GFG Alliance acquired the 90-year-old smelter near Fort William and its hydropower plant from mining giant Rio Tinto in a £330 million deal in 2016, with the agreement underwritten by a £586 million Scottish government guarantee to buy energy from the hydro plants.
Scottish Liberal Democrats economy spokesman Willie Rennie questioned the financial deal the Scottish government has with GFG, cautioning a potential UK-wide recession on the horizon could affect the plant through depressed aluminium prices.
Mr Rennie said: “This is another worrying sign about the underlying health of the smelter plant at Lochaber.
“I am sure Brexit and Covid will have affected the business but with a cheaper electricity supply, it should be doing far better.
Despite big flashy promises of 2,000 jobs and a new billet plant, nothing has materialised even though the SNP government has provided hundreds of millions of pounds of financial guarantees.”
— Willie Rennie
“It seems the high price of aluminium is keeping the company afloat now but it’s not certain how long those prices will remain high especially with the prospect of a recession looming.
“Despite big flashy promises of 2,000 jobs and a new billet plant, nothing has materialised even though the SNP government has provided hundreds of millions of pounds of financial guarantees.
“The government must now be open about the financial agreements with GFG alliance.”
GFG created 40 new jobs – Scottish government
A Scottish government spokesperson highlighted the impact on the Lochaber site of Covid, but insists its intervention to support the smelter had supported jobs.
The spokesperson said: “GFG has created 40 new jobs in Lochaber since 2016 – increasing direct employment in the complex to 200 jobs and supporting a valuable supply chain with hundreds of associated jobs.
“The Scottish government receives a commercial fee in respect of the Lochaber Guarantee and guarantee fee payments are up-to-date.
“The guarantee was approved by the cross-party Finance Committee of the Scottish Parliament in 2016 and the transaction remains subject to regular scrutiny conducted by Scottish Government officials, Audit Scotland and the Scottish Parliament.”
Higher raw material prices blamed
The conglomerate is no stranger to controversy, as there have been serial crises since the collapse of its lender Greensill Capital, which had lent GFG, which stands for Gupta Family Group, companies as much as £3.5 billion.
Alvance British Aluminium’s unaudited financial statements, signed off by GFG conglomerate owner Sanjeev Gupta, put the blame for the pre-tax loss on a “combination of higher alumina (aluminium oxide used to smelt aluminium metal) prices for its raw materials and lower demand for the company’s products because of the Covid pandemic.”
A GFG Alliance spokesperson insisted the business was now profitable as both metal prices and demand have “increased significantly” since the pandemic, and that it remains on track to expand operations with plans to develop recycling and manufacturing facilities.
“Alvance is undertaking enhancements to upgrade the Lochaber plant’s connection to the grid, planned for completion in the fourth quarter of 2022,” the spokesman said in a statement.
“The Lochaber smelter is performing profitably despite the impact of high energy prices and our plans to nearly double capacity on site with a new recycling and billet casting plant remain firmly on track.
“The submission of accounts for some GFG Alliance entities has been impacted by the disruption caused by the collapse of our main lender Greensill Capital.
“The submission of unaudited accounts is an interim step and we remain in contact with Companies House over all filings.
“Alongside this, we continue to negotiate a consensual debt restructuring in the best interest of all stakeholders, not least the thousands of employees that rely on our businesses in the UK and around the world.
“We are making good progress towards this goal as evidenced by our refinancings in Australia and the US and the standstill agreement with Greensill Bank, our largest creditor by far.”
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