South32 to sell Richards Bay smelter — this is why Alcoa is buying it

Story audio is generated using AI

Australian miner South32, spun off from mining behemoth BHP a decade ago, has put its aluminium smelter in Richards Bay up for sale alongside its other aluminium assets, with US firm Alcoa Corporation the preferred buyer.The deal, worth about $4.1bn (R67.3bn), will see Alcoa own scores of South32 aluminium assets, including the Hillside aluminium smelter and the idled Bayside smelter property in South Africa, marking its foray into Africa’s largest economy.The deal also includes South32’s Mineração Rio do Norte bauxite mine and the Alumar alumina refinery and aluminium smelter in Brazil and the Boddington bauxite mine and the Worsley alumina refinery in Western Australia.South32 COO for its Africa business Noel Pillay said the deal captures the value the smelter is expected to continue to deliver, supporting local jobs and the economy.“As a leading global producer of materials across the aluminium value chain, Alcoa is well positioned to operate Hillside into the future. The smelter will be operated by a dedicated aluminium producer, which will bring the benefits of its deep aluminium value chain experience to the region,” Pillay said.“Over the past 30 years Hillside has made a significant and meaningful contribution to the social and economic development of South Africa. It has made a major contribution to South Africa’s economy, employed thousands of local workers, and played a key role in supporting the downstream aluminium industry. We expect this contribution to continue under Alcoa’s ownership.”Hillside is the only primary aluminium smelter in South Africa and the largest in the southern hemisphere. In Richards Bay and across KwaZulu-Natal, the smelter supports thousands of jobs, both directly and indirectly, through its value chain.After the conclusion of the deal, South32’s presence in Southern Africa will amount to its manganese operations in the Northern Cape and exploration activities in Botswana and Namibia.Alcoa said South32’s operations are a strategic fit to its growth ambitions. “The transaction is anticipated to deliver broad benefits to stakeholders worldwide. It enhances Alcoa’s secure and reliable global aluminium supply at a time of accelerating demand for critical minerals and metals,” the company said in a statement.“It reinforces Alcoa’s long-term commitment and investment in Australia and Brazil and establishes a new presence in South Africa. By strengthening industrial capacity in these regions, the transaction will support economic resilience and thousands of direct and indirect jobs across local communities.”South32’s new CEO Matt Daley said the group will seek the approval of its shareholders. “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.“Under Alcoa’s ownership, the assets will be part of a global aluminium value chain business. Together with Alcoa, we are committed to working closely with our people, communities, government and other stakeholders to support a successful ownership transition.”The deal, which will see Alcoa splash $3.1bn upfront, excludes South32’s Mozal facility in Mozambique. It will also see South32 take up Alcoa’s share worth $1bn.Mozal was placed in care and maintenance in March after it failed to strike a tariff relief deal with Eskom.Business Day last month reported that the Industrial Development Corporation (IDC) is engaging the services of transaction advisers to do due diligence on a possible deal, with the state-owned outfit keeping all options open as it looks to salvage the smelter, which accounts for about 3% of Mozambique’s GDP. The IDC has a 31.4% stake in Mozal, while Australia-headquartered South32 holds a controlling 63.7% stake and the government holds a 3.9% stake through preference shares.The facility, about 20km west of Maputo, was mothballed after South32 said energy costs were strangling the business.The move by the IDC received a boost after South32 indicated it was willing to sell its stake in Mozal.“Mozal Aluminium is excluded from the [Alcoa] transaction and remains on care and maintenance, with divestment under active consideration,” South32 said. Business Day