JOHANNESBURG (miningweekly.com) – South32 has exercised its pre-emptive rights to acquire up to an additional 25% shareholding and related rights in Mozal Aluminium, from Mitsubishi’s MCA Metals.

In doing so, the Sydney- and Johannesburg-listed diversified mining company will match a headline purchase price of $250-million to acquire the interest, taking South32’s ownership of the smelter up to 72.1%.

Increasing the shareholding lifts South32’s group-wide annualised equity share of aluminium production by 15% – or 145 000 t – to 1 138 000 t.

The accretive transaction, with an acquisition multiple of 3.6x on financial year 2021 earnings, will be funded from cash on hand. The group’s net cash balance at the end of August 2021 was $553-million.

“We have established a long operating track record at the Mozal Aluminium smelter in Mozambique over the past 20 years. During this time, we have formed strong relationships with our workforce, the community, the Mozambican government and other key stakeholders,” said South32 CEO Graham Kerr in a release to Mining Weekly.

The smelter benefits from access to hydroelectric power and key export markets into Europe and South32’s investment in the AP3XLE energy efficiency technology is expected to further improve the competitiveness of the smelter, which continues to operate at its technical capacity.

The smelter is an important customer for the alumina produced from South32’s Worsley Alumina refinery and the transaction will further integrate that relationship in its supply chain.

“We are pleased to be able to increase our shareholding on value accretive terms, with a transaction that we expect will deliver a strong return for our shareholders. We are also working with our partner at Alumar in Brazil to investigate a restart of the smelter using renewable energy. Both investments are consistent with our strategy to increase our exposure to the base metals required for the critical transition to a low carbon future,” said Kerr.

Completion of the transaction is expected following the satisfaction of customary conditions, with the transaction consideration comprising:

• a purchase price of $250-million based on the acquisition of Mitsubishi’s 25% shareholding and related rights, which would be adjusted downwards on a prorata basis should the Industrial Development Corporation of South Africa trigger their pre-emptive rights;
• joint profit sharing on South32's increased shareholding with Mitsubishi for the period 1 July 2021 until completion of the transaction; and
• customary adjustments for working capital and net debt.

South32’s Hillside aluminium smelter in Richards Bay, KwaZulu-Natal, produces primary aluminium for export markets. To support the development of the downstream aluminium industry in South Africa, a portion of liquid metal is supplied to Isizinda Aluminium which, in turn, supplies aluminium slab to Hulamin, a local company that produces products for the domestic and export markets. Hillside’s capacity of 720 000 t a year makes it the largest producer of primary aluminium in the southern hemisphere.

Aluminium is made by crushing and refining bauxite - an aluminium ore - into a white alumina powder then smelting the white alumina powder into aluminium metal.