In what has all the ingredients of an updated rerun of the cold-war classic The mouse that roared, the Australian listed junior partner in the sprawling mining and processing joint venture run by the once-mighty Alcoa Inc now stands between failure and success of the former commercial superpower's attempt to restructure itself to renewed relevance.

Alcoa was once the world's biggest miner. But a lack of executive clarity and ambition has left it sitting buried in the appendix of global mining's past rather than a shaper of its future. And the obvious sense of Australian-generated oppression expressed in Alcoa's filing to a Delaware court last week only serves to illuminate this transition.

Alcoa has asked the court to clarify whether Alumina can inject itself into the calculations that justify the withering US giant's effort to match BHP Billiton in shrinking itself to greatness.

When the Alcoa Worldwide Alumina and Chemicals joint venture was formed in December 1994, the junior partner was Western Mining Corporation. Seven years on WMC spun out its 40 per cent into a stand-alone entity. The entity that owned WMC's stake was renamed Alumina and it was a listed entity on the Australian Stock Exchange.

The AWAC joint venture was created to combine the bauxite mining and alumina processing assets of Alcoa and WMC. The American's over-weight contribution to that alliance left it with a controlling 60 per cent stake and management of the operations and the marketer of their products.

Limited veto

While the original agreements offered some limited veto at AWAC board level for the junior partner, the effect of the deal was that Alcoa was able to largely ignore its Australian partner in a joint venture for the better part of 21 years.

But Alumina appears to have celebrated its effective coming of age by asserting its adulthood at a moment least convenient for its father-figure Alcoa.

The theatre of this internecine drama is Alcoa's plan to divide itself in two.

Crushed by decades of inward-looking management, by China's relentless determination to turn excess power supplies into jobs and foreign exchange by building aluminium smelters and most recently by a balance sheet overweight in debt and underweight in sustaining cash flow, Alcoa Inc last year confirmed plans to release its high-end industrial metal fabricating businesses from the mining, alumina and aluminium smelting assets.

In marketing its proposed subdivision, Alcoa said its downstream business generated EBITDA of $US2.8 billion from $US13.2 billion in sales the Upstream Co made through FY15.

Interestingly, there are two chapters to that story.

Higher margins

Alcoa generated $US1.46 billion in cash flow from the $US9.5 billion of primary metal it sold. The bauxite and alumina business threw off lesser revenues ($US3.7 billion) but generated substantially higher cash margins with EBITDA coming in at $US1.3 billion.

This is the bit that reflects the Alumina share of Alcoa's fortunes. And it is this bit of the Alcoa plan that Alumina has thrown a spanner at.

Alumina is claiming that Alcoa's plan triggers rights established in the original 1994 agreement and reiterated in that agreement's revision in 2002 and since September last year the Australian mouse has been working to earn the ear of its US partner.

From my reading, Alumina's claim would seem to swing largely on two fairly standard joint venture protection clauses written into other original agreements.

The boundaries Alumina claims Alcoa has crossed would appear to be set in section 10 of something called the AWAC "formation agreement" and then in section 15 of the "Limited Liability Company Agreement of Alcoa Alumina & Chemicals, LLC".

Section 10.02 of the formation agreement appears restrain the reallocation of the ownership of either portion of AWAC while section 15.3 of the LLC agreement appears to give both sides a call over reassignment of the other's interest.

Express potential

The Alumina proposition is that the demerger in train delivers it with leverage and that no responsible board would refuse the opportunity to express its potential.

According to Alcoa's pre-Memorial Day long weekend filing with a Delaware court last Friday, first contact between Alumina and Alcoa announcing the risk of Australian intervention arrived on November 12, just six weeks after the demerger announcement.

In a letter Alumina reportedly asserted rights under the AWAC agreement. The Alcoa claim says the letter lacked specifics on those rights or how they might affect the transaction proposed.

If Alumina's intent was to invite dialogue, then it failed. Alcoa contrived to ignore AWAC and its partner. Given this issue is now headed for the courts and looms as, at best, a joint-venture destabilising delay for Alcoa management, this would appear to have been an error.

History might excuse any under-estimation of Alumina and its appetite to assert its right. But, for all the company is currently effectively a cashbox whose income is derived totally from the AWAC dividend flow, a scan of the management and board would tell anyone with savvy that Alumina is a business to be taken seriously.

Powerful collective

The Australian listing is run by a former Santos chief financial officer, Peter Wasow, and it is chaired by the Australian who once ran Alcoa's global alumina and aluminium businesses. They share the boardroom with a powerful collective that includes Peter Day, the eminent accountant whose claims to fame include making Rio Tinto's dual-listed accounts compliant with Australian, US and UK rules. This is a board established in obvious anticipation of the potential that a more muscular big brother might foreclose on the interests of Alumina's owners.

Having been ignored for two months, Alumina wrote again on January 27 to Alcoa to advise of concerns over the demerger plans. The third letter was sent on April Fools Day asserting that Alumina "intended to try to block or interfere with Alcoa's separation unless Alcoa met a series of demands".

Alumina asserted that Alcoa's deal needed the Australian's approval because it threatened to breach a series of protections in the AWAC agreement. To reduce the claims to simplicity, Alumina says that its new partner in AWAC will be half the company it was and that, in a legal sense, the joint venture's management will change hands as a result of the deal and that requires Alumina's consent.

Informatively, the Fools Day missive suggested that Alumina could claim marketing rights for its 40 per cent share of AWC's output as a result of these potential breaches. Earning marketing rights would make Alumina a quite different business. It would be simple cashbox no longer.

At some point between the January and April correspondence, Alumina earned itself a hearing in Pittsburgh. But a round of intense and detailed discussions went nowhere.

In its Delaware filing Alcoa referred to the receipt of a third letter from Alumina.

On May 24 Alumina expressed an intent to interfere with the progress of the demerger plan unless Alcoa met its demand by June 8.

Compelling logic

Alcoa reported that "unlike Alumina's prior letters", this one "purported to explain the basis for Alumina's claims" but noted that it appeared to rely on "distortions of the Agreements and mischaracterisations of the separation".

From one perspective there is a compelling logic to the Alcoa position. It is, after all, trying to do exactly the same thing that WMC did back in 2002. And back when the Australian spun off its share of AWC into Alumina, Alcoa found itself with no right of consent or of pre-emption on an apparent change of control.

The Alumina contention is that, from a legal perspective, the Alcoa demerger is an utterly different beast.

The way Alumina sees it, the Alcoa headstock will retain ownership of the downstream, value-adding business while the raw materials business will be delivered to a new legal entity.

But back in 2002 its was WMC's copper, nickel and phosphate investments that were spun out into a new legal entity, WMC Resources, while the AWC interest remained into its original shell, WMC Limited. It was simply renamed Alumina. So, from a legal standpoint at least, its continuity was protected and Alcoa's rights left undisturbed.