Diversified miner South32 has signed a binding conditional agreement to sell its aluminium value chain assets, including its interest in Worsley Alumina, in Australia, and Hillside Aluminium, in South Africa, to NYSE- and ASX-listed Alcoa Corporation for up to $5.6-billion.

South32's Mozal Aluminium operation, in Mozambique, is, however, excluded from the transaction. The operation remains on care and maintenance, with divestment under "active consideration".

Graham Kerr, who stepped down as South32 CEO, with effect from June 30, says the transaction with Alcoa will unlock significant value for shareholders and repositions South32 as a leading upstream base metals focused company with high-margin assets and transformational growth.

“The sale of our aluminium value chain assets to Alcoa for up to $5.6-billion will deliver significant upfront proceeds while retaining upside to commodity price strength through price-linked consideration.

“This transaction sees us unlock and capture our share of material synergies from combining our respective alumina businesses in Western Australia.”

The group’s new CEO Matt Daley adds that, once the transaction is completed, South32’s portfolio will be focused on high-quality, long-life assets leveraged to attractive market fundamentals, with about 85% of pro-forma earnings before interest, taxes, depreciation and amortisation from base and precious metals.

He says the business will be simpler with a portfolio of higher-margin upstream operations, reduced complexity and greater resilience.

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

“The transaction further strengthens our balance sheet, enhancing our capacity to invest in high-returning growth projects and deliver shareholder returns. Following completion, an initial return of approximately $500-million will be delivered to South32 shareholders through an in-specie distribution of half the equity consideration received, as a fully-franked special dividend. Additional shareholder returns will be considered following completion,” Daley adds.

He further points out that, under Alcoa’s ownership, the aluminium assets will be part of a global aluminium value chain business.

Alcoa will acquire South32’s interests in the Boddington bauxite mine and the Worsley alumina refinery, in Western Australia; the Hillside aluminium smelter and idled Bayside smelter property in South Africa; and the Mineração Rio do Norte bauxite mine and the Alumar alumina refinery and aluminum smelter, in Brazil.

“These high-quality, globally relevant assets are a strong strategic fit within our portfolio and align directly with our strengths as a leading pure-play upstream aluminium company. With our proven operating model and global capabilities, we are well positioned to enhance performance, unlock value, and support their long-term success within Alcoa.

“Alcoa is defined by how we operate, combining operational excellence, commercial discipline and a values-based approach that prioritises safety, reliability and partnership. By investing in this opportunity, we are underscoring our commitment to supply security for our customers, strengthening the communities in which we operate and delivering responsibly produced materials that are essential to the global economy,” comments Alcoa president and CEO William F Oplinger.

As consideration, South32 will receive $3.1-billion in cash and $1-billion in Alcoa shares. Alcoa will also assume about $750-million in net debt and lease liabilities.

The transaction also includes up to $750-million in contingent cash considerations, linked to alumina and aluminium prices to 2030.

Alcoa notes that the transaction is expected to generate synergies of about $900-million in net present value through operational optimisation across complementary assets and application of best practices. Consolidating the life of asset planning across the Western Australia mining and refining operations provides a considerable portion of the anticipated synergies.

In addition, the transaction consolidates South32’s Brazilian joint venture interests in the Alumar alumina refinery and aluminium smelter and provides Alcoa with new growth opportunities and an entry point into South Africa through a globally competitive aluminium smelter.

The transaction, which is expected to close in the second half of South32's 2027 financial year, is subject to various conditions, including approval by South32's shareholders, approval by the Australian Foreign Investment Review Board and Australian Competition and Consumer Commission, approval by the South African Reserve Bank's financial surveillance department and approval by South Africa's competition authorities.