Alcoa And Alumina Make Changes To AWAC Joint Venture

Alcoa Inc. (NYSE:AA) and Alumina Limited said that they have agreed to make some changes to the Alcoa World Alumina and Chemicals (“AWAC”) joint venture (JV) that will increase value for Alcoa, Alumina, and their respective shareholders.

In alignment with these adjustments, the parties have agreed to end their litigation in the Delaware Court of Chancery relating to Alcoa’s pending separation into two independent, publicly traded companies. Alcoa remains on track to complete the split in the second half of 2016. The changes to the JV agreements are planned so that the partners’ interests in AWAC are aligned while having strategic flexibility and autonomy for both.

Upon the completion of Alcoa’s separation, some changes will be made to the governance and financial policies of the JV, that are intended to increase cooperation among the shareholders. These changes will facilitate faster decision-making, joint input on significant decisions, improved information sharing and a more streamlined process for resolving disputes. Moreover, the changes will simplify AWAC’s dividend and cash management policies and require that AWAC raise a limited amount of debt to finance future mutually agreed growth projects.

In case of a change of control of either partner in the future, opportunities for the AWAC partners to engage in expansion and development projects would increase, with each partner having the right to proceed unilaterally with an expansion or development project inside the JV if the other partner decides not to participate. A partner that avails itself of such an opportunity would pay for the costs associated with the project, including for AWAC resources and shared facilities used, and be entitled to that project’s resulting off-take.

For instance, if an industrial acquirer became the new partner in AWAC it would be entitled to purchase alumina and bauxite at market prices for that partner’s internal consumption. Further, that future partner would also be entitled to purchase 1 million tons of alumina at market prices for resale into the market.

These changes promise a win-win situation and among other benefits this opens the door for an industrial partner to enter the joint venture, to become a long term customer for bauxite and alumina. These agreements reinforce the AWAC JV for Alcoa and Alumina, giving the companies more control over their investments and future strategic options.

Alcoa currently carries a Zacks Rank #3 (Hold).

Some better-ranked companies in the mining space include Coeur Mining, Inc. (NYSE:CDE) , Nevsun Resources Ltd. (TO:NSU) and Agnico Eagle Mines Limited (NYSE:AEM) . All these stocks carry Zacks Rank #2 (Buy).

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