South32 (LSE:S32), the ASX and LSE-listed diversified miner, has signed a binding conditional agreement to sell its aluminium value chain assets to Alcoa Corporation for an implied enterprise value of up to US$5.6bn, as incoming chief executive Matt Daley makes the deal his opening act.
"Our business will be simpler with a portfolio of higher margin upstream operations, reduced complexity and greater resilience," said Daley, who formally assumed the CEO role on 1 July following Graham Kerr's departure.
Separately, the miner announced it has given final investment approval for a fourth grinding line at its Sierra Gorda copper mine in northern Chile, committing approximately US$725 million in growth capital over fiscal years 2027 to 2030.
Asset sales
The assets being transferred include South32's interests in the Worsley Alumina refinery (86%), Hillside Aluminium smelter (100%), MRN bauxite mine (33%), Brazil Alumina refinery (36%) and Brazil Aluminium smelter (40%), with Alcoa also absorbing approximately US$1.2bn in rehabilitation provisions.
The consideration comprises US$3.1bn in upfront cash, roughly US$750m in net debt and lease liabilities assumed by Alcoa, and up to US$750m in contingent cash payments tied to alumina and aluminium prices through 2030, implying a through-the-cycle EBITDA multiple of approximately 6.8 times.
The implied enterprise value of up to US$5.6B implies a through-the-cycle EBITDA multiple of ~6.8x and annual average free cash flow multiple of ~12.7x.
Post-completion, South32 expects approximately 85% of pro-forma EBITDA to come from copper, zinc, silver and lead, with production volumes projected to grow by roughly 55% from the Taylor project and Sierra Gorda's fourth grinding line expansion, and overheads cut by approximately US$125m annually by FY29.
The transaction is expected to complete in the second half of FY27.
Sierra Gorda greenlight
The diversified miner holds a 45% interest in Sierra Gorda alongside 55% partner KGHM Polska Miedź, meaning South32's share of the capital bill is roughly US$326 million.
The project will expand processing capacity from approximately 48 million tonnes per annum to 60 million tonnes per annum through additional crushing, grinding and flotation infrastructure, with first production targeted for mid-fiscal 2030 and full rates achieved in fiscal 2031.
At steady state, Sierra Gorda is expected to produce roughly 195,000 tonnes of copper, 6,000 tonnes of molybdenum, 58,000 ounces of gold and 1.7 million ounces of silver annually on a 100% basis, equivalent to approximately 250,000 tonnes of copper equivalent and a roughly 30% increase on current guidance.
Average operating unit costs are expected to fall by approximately 10% once the expanded capacity is running.
The feasibility study projects a post-tax internal rate of return of approximately 20% at a long-term copper price of US$5 per pound, rising to approximately 23% at US$6 per pound.
"Sierra Gorda's operating performance and strong cash flow generation have provided a platform for value accretive copper growth from this long-life, high-margin operation," said Chief Executive Matt Daley.
The project will be funded from operating cash flow and existing joint venture debt facilities.
