The South32 Ltd [ASX:S32] is exercising its pre-emptive rights to bump up its stake in Mozal Aluminium by 25%.
S32 will bear a purchase price of US$250 million to acquire the interest.
The move will take South32’s stake in the smelter to 72.1%.
The South32 Ltd [ASX:S32] share price is up 2% at time of writing, currently trading at $3.46 per share.
A rise in commodity prices has seen the diversified miner’s shares gain 70% in the last 12 months.
Will today’s strategic move help S32 sustain momentum?
S32 moves to raise its stake in Mozal Aluminium
South32 exercised its pre-emptive rights to acquire up to an additional 25% shareholding and related rights in Mozal Aluminium from MCA Metals Holding GmbH (Mitsubishi).
S32 said the increased shareholding lifts its wide annualised equity share of aluminium production by 15% to 1,138kt.
The company notes that the accretive transaction will be funded from cash on hand, with an acquisition multiple of 3.6x FY21 EBITDA.
a purchase price of US$250 million is based on the company’s acquisition of Mitsubishi’s 25% shareholding and related rights.
This would be adjusted downwards on a pro-rata basis if the Industrial Development Corporation of South Africa (IDC) trigger their pre-emptive rights.
South32 Chief Executive Officer, Graham Kerr, said:
‘The smelter benefits from access to hydroelectric power and key export markets into Europe.
‘Our 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 our Worsley Alumina refinery and the transaction will further integrate that relationship in our supply chain.’
Outlook for S32 shares
South32 CEO Graham Kerr thinks the transaction holds accretive potential, saying:
‘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.’
South32 is also working with its partner at Alumar in Brazil to investigate a restart of the smelter using renewable energy.
Both investments are aligned with their strategy to increase its exposure to the base metals required for the critical transition to a low-carbon future.
For FY21, the company decided to pay a full-year ordinary dividend of 4.9 US cents per share, an increase of 133%, along with a special dividend of 2 cents per share.
With these promising developments, investors may see S32 as an attractive dividend stock.
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