By Rhiannon Hoyle and Elias Schisgall

Alcoa has agreed to buy South32's bauxite, alumina and aluminum assets across Australia, Brazil and South Africa in a cash-and-stock deal valued at up to $5.6 billion.

The deal secures prized bauxite and alumina operations near Alcoa's own plants in Western Australia, while establishing a new foothold for the company in South Africa. The acquisition also includes South32's stakes in alumina and aluminum operations in Brazil that Alcoa already owns.

Pittsburgh-based Alcoa will pay South32 $3.1 billion in cash upfront, alongside roughly 17.0 million newly issued shares valued at around $1.0 billion, the companies said in separate statements. They agreed to possible future payments totaling up to $750 million tied to annual alumina- and aluminum-price performance over the next four years.

Alcoa will also assume about $750 million in net debt and lease liabilities, South32 said. Alcoa values the net debt it will take on slightly differently, assessing it at $600 million.

"We think that we are acquiring fantastic long-term assets at a really reasonable price," Alcoa Chief Executive William F. Oplinger told analysts on a call.

The sale excludes the Mozal aluminum smelter in Mozambique, which South32 idled in March and is also considering selling.

Oplinger called the deal "a defining moment" for Alcoa and its shareholders. "It strengthens our leadership as a pure-play upstream aluminum company," he said.

The purchase makes strategic and economic sense for Alcoa, transforming it into a larger company with more global relevance, Jefferies analyst Christopher LaFemina said in a note.

Alcoa is already one of the world's biggest producers of aluminum, used in everything from Ford F-150 trucks to soda cans. Yet China dominates production globally in energy-intensive industry that has faced headwinds from soaring power costs.

Alcoa said greater scale and integration across bauxite, alumina and aluminum operations should reduce complexity and lower costs, helping it take advantage of forecast growth in long-term demand for the lightweight metal.

It expects the transaction to be accretive to earnings per share and free cash flow immediately upon closing, which is slated for the first half of 2027.

Yet LaFemina said the deal could be a temporary overhang on Alcoa's share price, given the shares to be issued as part of the deal will account for about 6% of Alcoa's stock.

The agreement was announced after the end of U.S. trading on Tuesday. By early afternoon in Sydney on Wednesday, Alcoa's Australian shares were 4.9% lower, while South32's stock was 9.0% higher.

For Australia-based South32, the sale sharpens its focus on copper, zinc, silver and lead operations that it says offer the highest margins and have options for growth.

"South32 will be a much simpler business," said Matt Daley, who on Wednesday succeeded Graham Kerr as CEO of South32.

The company said it intends to give its shareholders half of the Alcoa stock--today valued around $500 million--with additional returns to be considered once the deal completes.

Write to Rhiannon Hoyle at [email protected] and Elias Schisgall at [email protected]