South32 offloads aluminium business to Alcoa in $5.6B deal

Australian miner South32 will sell nearly its entire aluminium business to US producer Alcoa in a deal worth up to US$5.6 billion, marking one of the company's biggest portfolio reshuffles, according to multiple media reports.

The sale includes South32's 86% stake in Worsley Alumina, full ownership of Hillside Aluminium in South Africa, and stakes in three Brazilian assets comprising the MRN bauxite mine, an alumina refinery and an aluminium smelter.

Mozal Aluminium in Mozambique has been excluded from the transaction and remains under consideration for a separate sale.

Multi-billion package

Alcoa will pay US$3.1 billion in cash and US$1 billion in shares, giving South32 a stake of about 6% in the US company.

It will also assume around US$750 million in liabilities. South32 could receive a further US$750 million if aluminium prices meet agreed targets through 2030.

Shares of both companies fell around 2% after the announcement.

Portfolio reset

As per the media reports, the divestment allows South32 to sharpen its focus on higher-margin copper, zinc, silver and lead assets while retaining its manganese business.

The deal also marks the start of Matthew Daley's tenure as Chief Executive Officer, succeeding Graham Kerr.

"This Transaction will unlock significant value for shareholders and repositions South32 as a leading upstream base-metals-focused company with high-margin assets and transformational growth," Kerr said.

"Following completion, our portfolio will be focused on high-quality, long-life assets leveraged to attractive market fundamentals, with approximately 85% of pro-forma EBITDA from base and precious metals," Daley said.

"This will enable a leaner, lower-cost operating model that will deliver ongoing value through an anticipated $125 million per annum reduction in overhead costs as new support structures are implemented," he added.

Growth ambitions

South32 expects production from its Taylor zinc-lead-silver project in Arizona to increase by about 55% in the coming years. It is also advancing the planned expansion of the Sierra Gorda copper mine in Chile.

Alcoa strengthens position

For Alcoa, the acquisition expands its global mining, refining and smelting footprint and is expected to generate around US$900 million in net present value synergies.

"This is exactly the type of opportunity Alcoa is built to execute," said President and CEO William Oplinger.

"These high-quality, globally relevant assets are a strong strategic fit within our portfolio."

The acquisition strengthens its mine-to-metal platform and reinforces its position as a leading upstream aluminium producer with a globally diversified asset base.