Alcoa moves to split into two companies, avoid forced sales

US aluminium producer Alcoa said it will separate its main aluminium producing business from its parts-manufacturing operations.

The transaction was expected to close in the second half of 2016.

It was the culmination of a multi-year transformation, the company said in a statement.

The announcement came as companies in the mining space try to extract value – of which there is no lack – from their mining assets, after markets moved to price in no growth in the short-term, Atif Latif, director of trading at Guardian Stockbrokers said.

The upstream unit would be comprised of its Global Primary Products - Bauxite, Alumina, Aluminum, Casting and Energy - while the Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions would be hived off into a so-called Value-add company.

The latter would target an investment grade rating for its debt and the latter a non-investment grade rating, management said in a statement.

For the 12 months through 30 June the upstream business achieved $13.2bn in revenues and $2.8bn in operating profits.

During the same period the value-add company achieved sales of $14.5bn and operating profits on an EBITDA -basis of $2.2bn.

“Once we are starting to see visibility through this weakness , elevated risk metrics, balance sheet and debt concerns should start to ease hence allowing the investment case for being in this sector to be revisited given that asset sales should continue,” Latif added.

Moves like today’s by Alcoa may allow ‘forced sales’ to be halted “for the moment to try and extract more value than current spot prices suggest, given that the current valuation is not pricing is a pick in metal prices. There is a clear value play in a split of the commodity side v aero and auto.”

As of 13:19 shares in Alcoa were 4.19% higher to $9.48.