China’s state-owned Citic Group will pay A$452 million ($468 million) for a 13% minority stake in Australia’s Alumina. The move signals its expectation of an upturn in aluminium prices and reflects China’s increasing dependence on alumina imports.
Citic Resources intends to buy a 7.8% stake and its parent company Citic Group will purchase a 5.2% interest through a 366 million share placement, according to a statement by Alumina on Thursday. The placement at A$1.235 a share represented a 3% premium on Wednesday’s closing price.
Alumina shares surged as much as 17% on the news, as the injection of funds will allow the Australian company to reduce its net debt from $681 million to $216 million.
The 13% strategic investment by Citic might also be the platform for a future takeover, although not an imminent one. Under the terms of the agreement, Citic’s holding is restricted to 15% for two years and then capped at below 20%.
“This secures a strategic long-term investor at a premium to our recent share price,” Alumina chief executive John Bevan told shareholders. “Citic’s investment demonstrates its confidence in the alumina industry and its understanding of Alumina’s unique position in the global market.”
Citic Resources’ chief executive Chen Zeng will join Alumina’s board of directors, and the investment has already been approved by the Australian Treasury and by the National Development and Reform Commission of China.
Alumina’s main asset is a 40% holding in Alcoa World Alumina and Chemicals, a venture with US firm Alcoa that is the world’s biggest alumina producer. Alumina’s deal with Citic is likely to put pressure on Alcoa to make a takeover bid for the Melbourne-based firm, according to an analyst.
China’s alumina imports tripled in 2012 from a year earlier, partly due to restrictions imposed by Indonesia on its bauxite imports. Alumina is produced through refining bauxite, and is then smelted into aluminium metal.
“The board regards aluminium as a key strategic commodity and Alumina has significant interests in key assets,” Citic Resources said in a statement. Citic Resources is the listed natural resources unit of Citic Group, whose principal interests are financial services.
However, the share placement with Citic does not include a supply agreement.
The aluminium price has been depressed since the financial crisis as production increases by emerging countries caused over-supply. But, at around $2,000 a tonne, it has now risen from a low of less than $1,300 a tonne following China’s announcement of future stimulus spending.
Citic Resources already has a 22.5% interest in the Portland Aluminum Smelter joint venture with Alcoa and Japan’s Marubeni Corp.
Alumina was advised by Flagstaff Partners, and Citic was advised by ANZ.
