Alcoa secures future as top alumina producer with new agreement

On February 25, Alcoa announced a new agreement with Alumina Limited regarding acquiring Alumina Limited, pending the finalization of a scheme implementation agreement. The companies have signed an exclusivity and transaction process deed with Alumina Limited's Board of Directors indicating its intent to recommend the transaction to shareholders.

About the agreement

In this all-scrip (all-stock) deal, Alumina Limited shareholders are set to receive 0.02854 shares of Alcoa for each share of Alumina Limited they own, as per the "Agreed Ratio." As of Alcoa's closing share price on February 23, 2024, this ratio suggests an equity valuation of approximately $2.2 billion for Alumina Limited.

The Board of Directors of Alumina Limited plans to recommend the Agreed Ratio to its shareholders, provided there is no superior proposal and subject to an independent expert's ongoing assessment that the transaction serves the best interests of Alumina Limited shareholders.

As the Process Deed outlines, Alcoa and Alumina Limited aim to finalize and execute a scheme implementation agreement for the all-scrip transaction (the "Agreement"). Upon the Agreement's completion, Alumina Limited shareholders would hold a 31.25 per cent stake, while Alcoa shareholders would hold a 68.75 per cent stake in the combined company.

Conditional Share Sale Agreement with Allan Gray Australia

Alumina Limited's largest shareholder, Allan Gray Australia, has reached an agreement with Alcoa granting Alcoa the option to purchase up to 19.9 per cent of Alumina Limited at the Agreed Price of 0.02854 Alcoa shares for each Alumina Limited share. This conditional share sale agreement will be disclosed in a substantial holder notice to be released to the ASX.

Alcoa operates Alcoa World Alumina and Chemicals (AWAC)

Alcoa operates Alcoa World Alumina and Chemicals (AWAC), a joint venture (JV) with Alumina Limited as its sole operator. AWAC includes affiliated entities in bauxite mines and alumina refineries across Australia, Brazil, Spain, Saudi Arabia, and Guinea. Additionally, AWAC holds a 55 per cent interest in an aluminium smelter in Victoria, Australia. Alcoa directly or indirectly owns 60 per cent of the AWAC entities, with Alumina Limited holding the remaining 40 per cent.

The proposed Agreement aims to enhance Alcoa's economic stake in its core operations and streamline governance by acquiring the minority partner in its AWAC joint venture. This move is designed to provide increased operational flexibility and strategic opportunities.

Furthermore, the Agreement would enable Alumina Limited shareholders to partake in the potential growth of a more robust, well-capitalized company with an expanded and diversified portfolio. Additionally, it offers exposure to Alcoa's upstream aluminium business.

Compelling Strategic and Financial Benefits

• It increases Alcoa's exposure to its core, tier-1 bauxite and alumina business and provides Alumina Limited shareholders with exposure to Alcoa's global aluminium business. Acquiring Alumina Limited would consolidate Alcoa's ownership of one of the world's largest bauxite and alumina producers with tier-1 assets. With this acquisition, Alcoa would significantly increase its ownership in five of the 20 largest bauxite mines and five of the 20 largest alumina refineries globally (excluding China).2 This complements Alcoa's low-carbon, global smelting portfolio with the fifth most significant global production (excluding China).3 Importantly, Alumina Limited shareholders gain access to the benefits of Alcoa's upstream aluminium business.
• Enhances Alcoa's global position as the leading pure-play upstream aluminium company. Combining Alcoa and Alumina Limited would enhance Alcoa's vertical integration across the value chain, with leading positions across bauxite, alumina and aluminium smelting and casting, excluding China. AWAC's mining operations are located near AWAC refineries and major Atlantic and Pacific markets. Alcoa's smelters are close to key markets in North America and Europe. The increased vertical integration in a combined company also provides more stability throughout the commodity cycle.
• The acquisition gives Alumina Limited shareholders ownership in a more robust and well-capitalized enterprise. Through ownership in the combined entity, Alumina Limited shareholders will exchange their shares in a non-operating passive investment vehicle for a stake in Alcoa. This transition enables Alumina Limited shareholders to participate in Alcoa's capital returns program, including dividends, and grants access to a larger, more robust balance sheet. This enhanced financial position will better support funding for portfolio initiatives, maintenance and growth capital.
• The acquisition streamlines corporate structure and governance, increasing operational flexibility and strategic opportunities. Achieving 100 per cent ownership of AWAC simplifies the corporate framework and enables a more efficient operating model. With a centralized management team and strategy, Alcoa will be more adept at swiftly executing operational and strategic plans. Moreover, this simplified structure will drive efficiencies by reducing corporate costs.
• Reaffirms Alcoa's commitment to Western Australia – a premier global mining jurisdiction. Alcoa has a long track record in the tier-1 Western Australia mining jurisdiction. The proposed acquisition of Alumina Limited builds on Alcoa's commitment to continued productive relationships built on engagement with local communities, significant employment, and improved environmental performance. The proposed acquisition would better position Alcoa to continue its long-term plan of investing in Australian bauxite mining and alumina refining.