South32 sells aluminium assets to Alcoa in up to US$5.6 billion deal

About South32 Limited

South32 Limited (ASX: S32) is a globally diversified mining and metals company headquartered in Perth, Western Australia. Spun out of BHP in 2015 under the leadership of Graham Kerr, the company produces minerals and metals critical to the world’s energy transition from operations across the Americas, Australia and Southern Africa. South32’s portfolio spans manganese, copper, zinc, silver, lead, alumina and aluminium, with major operations including the Worsley Alumina refinery in Western Australia, the Hillside Aluminium smelter in South Africa, and the Sierra Gorda copper mine in Chile. The company also holds the Hermosa project in the United States, which is in construction and anchored by the Taylor zinc-lead-silver deposit. South32 is listed on the Australian Securities Exchange, the London Stock Exchange and the Johannesburg Stock Exchange.

The transaction

South32 and Alcoa have signed a binding conditional agreement under which subsidiaries of Alcoa will acquire the South32 subsidiary companies that hold the aluminium value chain assets. The transaction is structured on a locked box mechanism, with Alcoa entitled to the cash flows from the assets from 1 April 2026. South32 will receive a ticking fee equal to 5.0 per cent per annum of the US$3.1 billion cash consideration, calculated from the date of South32 shareholder approval through to completion and payable at completion.

The implied enterprise value of up to US$5.6 billion represents a through-the-cycle EBITDA multiple of approximately 6.8 times, based on average consolidated underlying EBITDA of the assets of approximately US$800 million over the period FY21 to FY25, and an annual average free cash flow multiple of approximately 12.7 times. Alcoa will assume all current and future liabilities of the assets, including operating control at completion. South32’s cash tax liability in relation to the upfront consideration is expected to be approximately US$50 million.

Mozal Aluminium in Mozambique is excluded from the transaction and remains on care and maintenance, with divestment under active consideration.

Strategic significance

The sale fundamentally reshapes South32’s portfolio. Following completion, approximately 85 per cent of pro-forma EBITDA will be derived from base and precious metals, specifically copper, zinc, silver and lead, commodities the company’s management regards as structurally attractive given global electrification and energy transition demand trends. The divestment also delivers a material improvement in South32’s sustainability profile, with pro-forma operational greenhouse gas emissions expected to reduce by approximately 95 per cent relative to FY25.

The transaction unlocks and captures South32’s share of material synergies from combining the respective Western Australian alumina businesses of South32 and Alcoa, a key piece of industrial logic underpinning the premium valuation achieved. Outgoing chief executive Graham Kerr, who will remain as a strategic adviser to support transaction-related engagements, described the deal as one that will reposition South32 as a leading upstream base metals focused company with high-margin assets and transformational growth.

Growth outlook

Incoming chief executive Matt Daley, who assumed the role on 1 July 2026, emphasised that following completion South32’s portfolio will be concentrated in high-quality, long-life assets in tier one mining jurisdictions across Australia, Chile and the United States. The company’s funded growth profile is expected to deliver approximately 55 per cent production growth through the Taylor project at Hermosa and Sierra Gorda’s fourth grinding line expansion. A deep pipeline of copper and zinc growth options in study and exploration phases provides additional upside. The transaction also enables a leaner operating model, with an anticipated reduction in overhead costs of approximately US$125 million per annum, with full benefits expected to be realised by FY29.

Shareholder returns

South32 has committed to distributing half of the Alcoa shares received as upfront equity consideration to shareholders as a fully franked in-specie special dividend following completion, representing an initial return of approximately US$500 million at current market values. Eligible shareholders will receive franking credits as additional value. The Alcoa shares will be issued without restriction and will be freely tradeable. South32 has also indicated that additional shareholder returns will be considered following completion, consistent with its disciplined capital allocation framework and commitment to distributing a minimum of 40 per cent of underlying earnings as ordinary dividends.

Conditions and timeline

Completion of the transaction is subject to South32 shareholder approval, Australian Foreign Investment Review Board approval, Australian Competition and Consumer Commission approval, South African Reserve Bank approval and certain other international regulatory approvals, with all conditions to be satisfied or waived by 29 June 2027. The South32 board unanimously recommends shareholders vote in favour of the transaction, in the absence of a superior proposal and subject to an independent expert concluding it is in the best interests of shareholders.