Apollo Management to buy Xstrata aluminium business for US$1.15 billion

Mining company Xstrata PLC said Wednesday it will sell its aluminium business to Apollo Management LP for US$1.15 billion (euro857.7 million) in cash.

The sale of Xstrata Aluminum had been anticipated after the company announced it was conducting a review of its aluminium assets in March, although the price was slightly above the analysts' consensus of about US$1 billion, with forecasts ranging from US$750 million-1.4 billion.

The world's fifth-largest mining company said the proceeds will go towards general working purposes and help fund acquisitions. Xstrata recently made recommended offers of US$4 bln for LionOre Mining International Ltd and A$391 mln for Gloucester Coal Ltd.

Xstrata Aluminum was created from Falconbridge Ltd's aluminium assets, known as Noranda Aluminum, following Xstrata's acquisition of Falconbridge in 2006. The business being sold comprises a primary smelter in Tennessee and three rolling mills in Tennessee, North Carolina and Arkansas.

Apollo Management will also acquire a 50% stake in the Gramercy refinery in Louisiana and the St Ann bauxite mine in Jamaica both of which are owned through a joint venture with Century Aluminum Inc.

Switzerland-based Xstrata won control of Canadian mining company Falconbridge Ltd. last year after a heated battle against Inco Ltd. and copper miner Phelps Dodge Corp. The US$18.8 billion deal allowed Xstrata to diversify into nickel and aluminium and enter the North American market.

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

Numis called the sale to a private equity investor 'interesting', adding that many market commentators believed the most likely buyer would be Century Aluminum..

The transaction is expected to be completed in the second quarter.

'Combining this with LionOre and Gloucester Coal, assuming all these transactions are effective from mid year, Xstrata will have made a net 3.2 bln usd of acquisitions in 2007 not in our forecasts at the beginning of the year,' said Simon Toyne, an analyst at Numis Securities.

'We believe that in aggregate these deals will add about US$600 mln of EBIT to 2007 (7 pct of current forecast) and possibly a similar amount in 2008 at lower nickel prices,' he added.

He also said he anticipates the group's net debt to decline by at least US$1.5 billion in 2007, combining the three deals and amid strong cash flows. Xstrata started the year with net debt of 13.6 billion.

Xstrata shares rose 1.7 percent to 2,804 pence (US$55.21; euro41.18) in London on the back of rising copper prices.

Lehman Brothers raised its copper price forecast for 2007 and 2008, upped its target for the company, its top pick in the sector, to 3,300 pence from 3,100 while reiterating its 'overweight' rating.

Credit Suisse also increased its target for the mining company's shares to 3,500 pence from 3,000 and maintained its 'outperform' rating adding that the stock remained its number one pick in the sector.