The South32 Ltd (ASX: S32) share price will be one to watch this morning.
This follows the release of an acquisition announcement by the mining giant.
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Why is the South32 share price on watch?
The South32 share price could be on the move today after the mining giant announced the acquisition of an additional 25% shareholding in Mozal Aluminium in Mozambique from MCA Metals.
According to the release, South32 has exercised its pre-emptive rights to acquire the additional stake for US$250 million. This brings its ownership of the smelter up to 72.1%.
The company notes that this acquisition increases its company-wide annualised equity share of aluminium production by 15% (or 145kt) to 1,138kt.
The release explains that the accretive transaction, with an acquisition multiple of 3.6x FY21 EBITDA, will be funded from cash on hand. South32 had a net cash balance at the end of August of US$553 million.
Management commentary
South32's Chief Executive Officer, Graham Kerr, commented "We have established a long operating track record at the Mozal Aluminium smelter in Mozambique over the past 20 years. During this time, we have formed strong relationships with our workforce, the community, the Mozambican government and other key stakeholders."
Mr Kerr also notes that the competitiveness of the smelter is expected to improve following its investment in new technology.
He explained: "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."
The Chief Executive was also pleased with the price the company is paying, noting that it will be accretive to value.
"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. We are also working with our partner at Alumar in Brazil to investigate a restart of the smelter using renewable energy. Both investments are consistent with our strategy to increase our exposure to the base metals required for the critical transition to a low carbon future," he concluded.
The South32 share price is up 36% in 2021.
