SOUTH32 is to sell its aluminium assets, including South Africa’s Hillside facilities but excluding the shuttered Mozal Aluminium in Mozambique, to Canada’s Alcoa for $4.1bn in cash and shares, it was announced on Wednesday.
The package consists of the whole aluminium-making chain including the MRN bauxite mine in Brazil in which South32 has a 33% stake, and its 36% stake in Brazil Alumina refinery. Bauxite ore is refined into alumina, an oxide, prior to smelting into aluminium. South32’s key Australian asset Worsley Alumina (86%) is included in the sale.
“This is exactly the type of opportunity Alcoa is built to execute,” said Alcoa CEO William F. Oplinger in a statement. The group expects to extract about $900m in synergies from the transaction, he said.
Alcoa will pay South32 some $3.1bn in upfront cash with the balance in 17 million shares. South32 may receive an additional sum of up to $750m should the aluminium and alumina prices exceed a pre-agreed strike price for each of four successive annual periods beginning July 1.
In a presentation on its website, South32 said proceeds from the deal would provide “flexibility to fund near-term growth and shareholder returns”. In a fillip to shareholders, however, half of the Alcoa shares – worth about $500m – would be paid out as an ‘in-specie fully-franked special dividend’.
The group also indicated it would provide an updated capital management framework on completion of the transaction.
Referring to Mozal, the group said it remained on care and maintenance “with divestment under active consideration”. The facility was shut in March after South32 failed to secure a long-term power supply agreement with the Mozambican and South African power utilities. The Industrial Development Corporation, the South African bank which has a 31.4% stake in Mozal, is said to be weighing up its options regarding Mozal.
South32 hoped to conclude the deal in the second half of the 2027 financial year. For it to proceed, it requires the approval of South32 shareholders, to be held at the group’s AGM scheduled on October 15, as well as the green light from regulatory authorities such as the Australian Foreign Investment Review Board and the country’s competition board.
For South32 strategically, today’s transaction – if completed – will result in a “streamlined, higher margin portfolio of upstream operations with reduced complexity,” it said. Overhead costs will be reduced by $125m.
In terms of South32’s South African presence, the transaction leaves only its share in the manganese joint venture Samancor with Anglo American as partner.
The assets contribute about 16% to South32’s underlying Ebitda – not insignificant albeit the smallest contributor of a total portfolio consisting of base metals (copper 55%). But in terms of balance sheet exposure, South32 has minimised its Africa risk to about 3% of total annual capex.
The deal also removes the trouble of negotiating a new power deal for Hillside which needs to be introduced by about 2031. Alcoa did not disclose its long-term plans for the KwaZulu-Natal assets in its statement.
Although part of the deal, no mention was given by Alcoa in its statement of any plans for the Bayside property, long-closed by South32.
