Sims investor floats NorthAm asset sale to SA

A major shareholder of global metals recycler Sims is backing the sale of the company's North America business to SA Recycling.

Australian investment firm Allan Gray, a 19pc shareholder of Sims, told Argus that Sims may not be able to capitalize on more favorable long-term market conditions for its North America Metal (NAM) business, given their "institutionalized management style."

"As a large shareholder of Sims we see enormous upside but have concerns over the current ownership structure of NAM in being able to extract this," Allan Gray chief investment officer Simon Mawhinney told Argus. "So yes, absolutely, we are in favor of NAM falling under the SA Recycling umbrella and being managed by SA for the long term."

Sims owns a 50pc stake in SA Recycling — short for Sims Adams Recycling — but does not manage the company.

While Allan Gray would prefer that Sims turn NAM into a more profitable business so that it could capture 100pc of the upside, Sims would retain a 50pc stake in NAM if it sold to SA Recycling, allowing stockholders to benefit from NAM's "likely prosperous future," Mawhinney said.

He added that a larger focus on improving margins rather than emphasizing higher scrap volumes could enhance NAM's performance.

SA Recycling reported A$125mn ($82mn) earnings before tax in the second half of 2023, while Sims' NAM division posted an A$8.8mn ($5.8mn) loss before taxes during that period.

During its February earnings call, Sims said that it planned to rely more heavily on supplying steelmakers in the US domestic market. The NAM unit sold about two-thirds of its volumes in the export market in the second half of last year.

The Australian company also noted that its NAM business sourced about one-third of its supply as unprocessed scrap. More than three-quarters of SA Recycling's supply is unprocessed, allowing its network of metal shredders to add value. Sims reports its fiscal year earnings later today.

Sims announced the sale of its UK business last week to Unimetals Group for $249mn. That deal includes 28 total sites, including three port facilities and four shredders.

"We are committed to finalizing the transaction with Unimetals," Sims said. "In line with our strategy this supports our focus on the growth opportunities in the NAM and [Australia and New Zealand] regions. We are not focused on any further transactions at the moment."

SA Recycling chief executive George Adams declined to comment.

By James Marshall