Comalco Sells Us Arm For $300m
Sydney Morning Herald
Thursday December 29, 1994
The aluminium giant Comalco is stepping up its strategic withdrawal from the downstream aluminium business by offering up for sale its $300 million business in the United States, Commonwealth Aluminum Corp.
The planned sale of CAC - through a public offering of shares in offshore markets - comes as the Kentucky-based aluminium scrap recycler and rolling mill operator comes storming back into profits.
Comalco is seizing the chance to offload a now profitable CAC in the resurgent aluminium market because since its acquisition, the operation has been a poor profit performer.
CAC's operations in Kentucky are all that now remains from the $US400 million acquisition by Comalco of Martin Marietta's aluminium interests in 1985.
The acquisition was a key plank in Comalco's once grand vision of becoming a big player in the downstream business of aluminium processing and fabrication in the major overseas markets.
Comalco's rationale for the 1980s charge overseas was to provide base-load demand and allow it to finesse margins for its burgeoning aluminium metal production in Australia and New Zealand.
But the poor returns from the investments forced the CRA subsidiary to reassess its strategy, prompting the February 1992 decision to make a $200 million write-down on the value of its downstream assets here and in the US.
That write-down ushered in the new strategy of concentrating on the upstream businesses of bauxite mining, alumina refining and aluminium smelting- areas in which its managing director, Mr Nick Stump, says the group's competitive advantages lie.
Comalco said yesterday that a decision to proceed with a public offering in CAC would be made in February, with CAC starting the process in a filing with the US Securities and Exchange Commission.
The filing indicates Comalco could raise $305 million from the sale of 10 million shares, while CAC itself could get $45 million from oversubscriptions for debt reduction.
Comalco emphasised yesterday that it was considering the possibility of making the public offering and that a decision to proceed had yet to be taken
That is to be expected until Comalco knows what demand there will be for CAC stock. But, given the initial filing with the SEC, Comalco has clearly indicated that it believes market conditions are now ripe for such an offering.
Mr Stump was not available yesterday to confirm that point as he was testing his yachting skills in the Sydney to Hobart race.
He knows the value of CAC more than most, having been the president of CAC before his appointment as Comalco's managing director.
CAC operated at a loss in 1993 despite the growth in its sales from $544 million to $608 million. In the June half this year, CAC was able to return to profits, thanks to increased average selling prices and record sales volumes. These volumes were offset partly by higher metal costs.
Bloomberg Business News yesterday reported CAC had a profit for the 10 months to October 31 of $US22.92 million ($29.46 million).
The dramatic turnaround from losses reflects the increase in demand in response to increased economic activity.
The stronger demand comes at a time of reduced competition, with a number of competitors dropping out last year.
Even so, the surge in aluminium prices - up by 73 per cent this year -again raises the prospect of the metal feeling the heat from substitutes.
* Meanwhile, Comalco's parent, CRA Ltd, has secured a long-awaited rise in iron ore prices following lengthy negotiations with Japanese steel mills.
CRA's Hamersley Iron joins BHP and North Ltd's Robe River Iron Associates in winning an average 7 per cent increase.
© 1994 Sydney Morning Herald