Alcoa deal boosts Alumina market value by $570m

Alumina’s peace deal with Alcoa over their AWAC venture has given it a $570m boost in the space of two trading days.

The Queensland Alumina refinery at Gladstone. Alumina shares have soared 15pc in two days.

Alumina’s peace deal with Alcoa covering their global alumina ­alliance AWAC has given the Melbourne-based group a $570 million boost in the space of two trading days.

The peace deal came with new freedoms for Alumina which has made it more of a takeover target, as well as serving up more say in the running of AWAC and greater certainty around dividend flows.

The market followed up last Friday’s 8.2c gain for Alumina shares in the initial response to the peace deal with an 11.5c gain to $1.49 yesterday, taking the two day rise to 19.7c or 15 per cent.

One of the biggest beneficiaries has been the contrarian investment fund manager Allan Gray, which topped up its stake in recent months to 10.28 per cent, Alumina’s third biggest shareholder and now worth $440m.

The chief investment officer at Allan Gray, Simon Mawhinney, said the rationale for the recent top-up in the fund manager’s stake was the fundamental value proposition at the lower price levels. “But I did expect a peace deal as well. These things seldom go all the way to the courts,’’ he said.

Before the peace deal, Alumina and Alcoa were headed to a September 20 showdown in a Delaware court, with the action threatening to delay Alcoa’s planned $US14 billion ($18.4bn) demerger plan.

Alumina seized the chance to force a change in the AWAC relationship when Alcoa announced its plan to shunt AWAC into the upstream company after its demerger, due to take place before the end of the year.

AWAC is 60 per cent-owned by Alcoa, which is also the manager, and 40 per cent-owned by AWAC.

The key change in the peace deal is the removal of the “poison pill’’, which required an acquirer of either company to sell into AWAC or divest any of its bauxite or alumina assets.

“Alumina management took full advantage of the circumstances and do seem to have negotiated a good outcome for shareholders,’’ Mr Mawhinney said.

But he said the company “remains a serial disappointer in terms of price performance.’’ Alumina traded at more than $2 a share early last year.

Mr Mawhinney said the peace deal did introduce a takeover premium in to Alumina’s share price.

“But I still think that Alcoa’s 60 per cent interest in the (AWAC) joint venture is an impediment to a smooth takeover,’’ Mr Mawhinney said.

“So day to day, I don’t think that there is too much to get excited about.”