Xstrata Sells Aluminium Assets For $1.15B

LONDON--Xstrata PLC (XTA.LN) Wednesday said it has agreed to sell all its aluminum interests through the disposal of Xstrata Aluminum to private equity firm Apollo Management LP for $1.15 billion in cash.

The Anglo-Swiss mining company, which created Xstrata Aluminum from the former Falconbridge Group's aluminum assets, known as Noranda Aluminum, in 2006, said the transaction is subject to regulatory approval and is expected to complete in the second quarter.

Noranda Aluminum comprises a 100% owned primary smelter in New Madrid, Tennessee and three modern rolling mills in Tennessee, North Carolina and Arkansas, together with a 50% interest in the Gramercy aluminum refinery in Louisiana and St Ann bauxite mine in Jamaica, both of which are owned through a joint venture with Century Aluminum Inc.

Apollo Management is a private equity and capital markets investor with investments in a range of sectors in the U.S. and internationally.

The sale, which was widely anticipated, fetched a slightly higher price than some had been expecting.

One analyst said the consensus expectation was for a price of between $900 million and $1 billion.

"It's a small positive," he said, but noted that because the sale was anticipated, it shouldn't affect Xstrata's share price.

Analysts at Numis Securities said the sale will help to finance the two bids Xstrata has recently announced for LionOre and Gloucester Coal. They said that by combining the three deals, and given strong cash flows, they still expect net debt to decline by at least $1.5 billion in 2007. They also maintained an add rating on the shares with a 3,041 pence price target.

At around 0824 GMT, Xstrata shares were up 42 pence, or 1.5%, at 2,799 pence, outpacing a higher London market.

Xstrata's exit from the aluminum business follows a further rise in aluminum prices, which are up nearly 10% on average from the first quarter last year.

Tuesday, U.S.-based Alcoa Inc. (AA) reported an 8.9% increase in first-quarter profit, helped by resurgent aluminum prices. Alcoa is the world's largest producer of aluminum.

However, the outlook for aluminum prices has also turned somewhat uncertain, despite healthy demand from the aircraft industry, due to a weak U.S. housing market and automotive sector.

In a statement about the deal, Mick Davis, Xstrata Chief Executive, said: "The sale of Xstrata's aluminum assets represents the successful conclusion of the in-depth review of the business."

He added that while Noranda Aluminum is cash generative, its assets "do not provide Xstrata with the necessary scale or upstream exposure to represent a suitable entry point from which to build a world-class aluminum business."