Saudi Arabia: Ma’aden builds aluminium industry from scratch

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By:
Dominic O’Neill
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Mining company’s CEO hopes credit crunch won’t dent IPO and funding for expansion projects.

Abdallah Dabbagh, Ma’aden

"Our project is not dependent on imported alumina and market fluctuation. Our inputs for the site – bauxite, caustic soda, energy – are local"
Abdallah Dabbagh, Ma’aden

The build bigger approach is characteristic of the Gulf. Are too many aluminium smelters being built in the region? Abdallah Dabbagh, president and chief executive of Ma’aden, Saudi Arabia’s national mining company, thinks the proximity of huge hydrocarbon resources means they will all remain competitive on the global market. In any case, he tells Euromoney: "Ma’aden is not building an aluminium smelter. We are building the largest aluminium industry ever built at one time: we are building a mine, a refinery, a smelter, and a power plant."

The Saudi capital market regulator announced in May that Ma’aden could launch an IPO in July. It will be one of the largest ever listings on the local exchange, raising almost $2.5 billion for a 50% sale of the firm. But the Saudi government will probably retain a majority holding, as two state pension funds have each been reserved 5% of the IPO.

Saudi IPOs have to be priced at face value if the company is not operational but Ma’aden is already active, producing several hundred thousand ounces of gold every year. So the offering will be priced at SAR10 per share plus SAR10 per share premium. Almost half a billion shares are being sold. JPMorgan is advising on the deal.

Funding for fertilizers

It was only in April that Ma’aden raised a similar sum of capital, about $2.5 billion – through a limited recourse loan for its fertilizer business. Ma’aden and Sabic, the Kingdom’s national petrochemicals company, have already started constructing a fertilizer processing plant at Ras Az Zour on the Gulf coast.

In the north of the country, the two firms are developing one of the world’s largest phosphate mines. The mineral will be transported 1,500 kilometres to be processed into fertilizer at Ras Az Zour on a railway being built by various international firms. The Saudi Public Investment Fund is financing the $2 billion rail link.

PIF was also one of the lenders to the phosphate mine and processing facility. These plants will cost $3.5 billion, with Sabic providing $1 billion, and Ma’aden providing the rest. Both firms in the venture have raised 70% of their share of the project’s cost through April’s limited recourse loan; the remainder will come from the firms’ own capital.

Aside from PIF, other contributors to the loan include the Saudi Industrial Development Fund, a Korean institution that gives loans to companies using Korean contractors, as well as local and international banks.

Dabbagh says the worst effects of the credit crunch were avoided because prices for the loan were agreed in December.

The amount of financing needed for Ma’aden’s other mega-project, aluminium, will be decided in August. Estimates suggest this project will cost $7 billion. But Dabbagh says it might be even more expensive, even as he admits that financing will be difficult because of the credit crunch. "Hopefully the situation will ease and we will be able to move," he says.

International and local banks distributed a syndicated loan of almost $5 billion this spring to Emal of the United Arab Emirates. Emal is building the world’s largest aluminium smelter in Abu Dhabi. Yet Dabbagh says what Ma’aden is doing is different. "Our project is not dependent on imported alumina and market fluctuation. Our inputs for the site – bauxite, caustic soda, energy – are local," he says.

A stake for Rio Tinto

Rio Tinto Alcan has agreed to enter the aluminium project with a 49% stake in a joint venture with Ma’aden. The Anglo-Australian/Canadian mining firm is providing the main technology and expertise for the operation. "We provide the opportunity for them to be a partner," says Dabbagh.

Ma’aden aims to have both the aluminium and phosphate projects fully operational by 2012. But the firm is already scouring the desert and considering what would be the most effective mineral resources to exploit in the next stage of Ma’aden’s expansion. "Developing the strategy and identifying the projects is going to take a few years," says Dabbagh.

Global opportunities

He adds that Ma’aden will be in a better position to decide where to acquire or participate in projects abroad once the company has determined what to focus on after the aluminium and phosphate schemes are completed by 2012. He says this year’s partial privatization will make it possible to turn Ma’aden into an international concern, whereas its mandate at the moment, as before, is to develop minerals in Saudi Arabia only. "We now have enough confidence and expertise to exploit the global opportunities," says Dabbagh.

The chief executive says there is a strong possibility that an international acquisition could focus on a company with technology related to minerals that are abundant in Saudi Arabia. But he says a target might also be attractive if it provided better access to markets. "We chose Sabic as a joint venture partner for the phosphate plant because Sabic has a huge marketing platform for phosphate," he says. "We are going to produce 11% of world-traded diammonium phosphate in one go. That is not an easy thing to market."