3rd Jul 2026 07:49
(Alliance News) - Moody's Investors Service warned on Friday it may downgrade South32 Ltd after the miner announced the sale of its aluminium value chain assets this week.
The potential credit rating review comes after South32 said on Wednesday it had agreed to dispose of its aluminium value chain assets to US aluminium producer Alcoa Corp for an implied enterprise value of up to USD5.6 billion.
The aluminium assets include 100% of Hillside Aluminium in South Africa, 86% of Worsley Alumina in southwestern Western Australia, 33% of MRN bauxite mine in Brazil, 36% of Brazil Alumina refinery, and 40% of Brazil Aluminium smelter. But Mozal Aluminium is excluded from the proposed sale, as it remains on care and maintenance.
On Friday, Moody's said it has placed South32's Baa1/P-2 issuer and P-2 short-term commercial paper ratings on review for downgrade.
Moody's also changed the outlook for South32 to ratings under review from stable.
The credit rating agency said its decision reflected its view that the transaction would result in a "significant" weakening in South32's business profile.
The divestment would materially reduce South32's scale, commodity diversification and operating footprint, while removing assets that contributed around 37% of underlying earnings on average over the five financial years ended 2025, Moody's said.
The transaction also continues a multiyear portfolio rationalisation that has included the sale and closure of several operations and further reduces South32's exposure to wholly-owned and controlled producing assets, Moody's said. Following completion, Cannington will be South32's only wholly owned producing mining operation, it noted.
Cannington mine in Australia produces zinc, silver and lead.
If the Alcoa deal succeeds, South32 will retain exposure to copper, silver, lead, zinc and manganese.
"If the transaction completes as proposed without any further announced or executed initiatives to enhance South32's business profile, the ratings could be downgraded by at least one notch," Moody's warned.
But the rating agency conceded that the Alcoa transaction will significantly strengthen South32's financial profile.
"Upon completion, we expect South32 to maintain a substantial net cash position, supported by the significant upfront cash proceeds from the sale," it said.
South32 has indicated it likely will repay its USD700 million senior notes due 2032 upon completion of the transaction, which combined with de-recognised lease liabilities as part of the transaction, will materially reduce gross debt levels, Moody's said.
Shares in South32 ended flat at AUD4.16 on Friday in Sydney.
By Artwell Dlamini, Alliance News senior reporter South Africa
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