China's state-owned CITIC Group has bought a A$452 million ($467 million) stake in Australia's Alumina Ltd, giving it an interest in the world's largest alumina business at a time when China has grown more dependent on alumina imports.
Alumina's shares jumped as much as 17 percent on news of the share sale, spurred by relief that the company has been shored up by a strategic investor, allowing it to pay down debt as the aluminium industry struggles with weak prices.
"This takes all the pressure off them," said Hayden Bairstow, an analyst at CLSA.
Alumina owns 40 percent of Alcoa World Alumina & Chemicals (AWAC), the world's top producer of alumina, in a joint venture with U.S. aluminium giant Alcoa.
CITIC, through its listed arm CITIC Resources Holdings and another subsidiary, will own 13 percent of Alumina following the placement, in a deal that has already won approval from the Australian and Chinese governments.
Under the terms of the agreement, the Chinese firm will be allowed to raise its holding to 15 percent and is capped at that level for two years. Beyond that it will be allowed to raise its stake to just below 20 percent.
Alumina said it would use the funds raised to pay down debt at a time when the aluminium industry has been struggling with rising energy costs and weak prices, largely due to unanticipated growth in aluminium production in China.
"CITIC's investment demonstrates their confidence in the alumina industry and their understanding of Alumina Limited's unique position in the global market," Alumina Chief Executive John Bevan said in a statement.
China has had to increase imports of alumina after Indonesia last year clamped down on exports of bauxite, which is used to produce alumina, which is then turned into aluminium. Its alumina imports nearly tripled in 2012 from the year before.
CITIC Resources, which already owns a direct 22.5 percent stake in AWAC's Portland aluminium smelter, said in a statement it considers aluminium a "key strategic commmodity".
An analyst said with bauxite supply likely to tighten by the end of this decade, CITIC's move on Alumina could help it lock in supplies down the track.
"For me it's a longer term strategic deal to secure supply. Some big projects in West Africa are a bit shaky. Indian deposits look like they will be relatively difficult to access. The bauxite market is going to get tighter from about 2017," said ANZ commodities strategist Nick Trevethan in Singapore.
As it stands, the share sale to CITIC does not involve any supply agreement.
CITIC agreed to pay A$1.235 a share for the equity stake in Alumina. Alumina's shares surged to a 14-month high of A$1.405 after the announcement and last traded up 8 percent at A$1.30, outpacing the broader market.
The struggling aluminium industry won another fillip this week when Rio Tinto agreed to keep open its Australian Gove alumina refinery, after securing gas supply from the Northern Territory government, crucial to cutting costs at the loss-making plant.
CITIC Resources previously owned a 25 percent stake in Macarthur Coal, and played a pivotal role in extracting a solid premium when the Australian miner was taken over by U.S. firm Peabody Inc in 2011, booking a A$400 million profit on that investment.
Alumina was advised by Flagstaff Partners, and CITIC was advised by ANZ Corporate Advisory.