Saudi Arabia to mine profit from mineral resources

Saudi Arabian Mining Company is set to expand into new mining ventures and the minerals processing sector in a move that could turn the company into the GCC's first world-class mineral resources company.

Mainly a gold producer, the state-controlled mining enterprise, also known as Ma'aden, has posted fluctuating profits in recent years. It had a net loss of 247.2 million riyals (Dh242.1m) in 2007 and 394.8m riyals in net earnings last year.

This year, despite record gold prices, its net profit may fall to 118.7m riyals, the Kuwaiti investment bank Global Investment House forecasts. But Ma'aden is poised for a dramatic surge in profits next year when its net income could increase more than tenfold to 1.4 billion riyals, according to Syed Akhtar, a senior financial analyst at Global. This month Mr Akhtar initiated coverage of Ma'aden's stock with a "buy" recommendation.

Driving the huge increase in forecast profits is the impending commercial start-up of a phosphate mining and fertiliser production project as a 70-30 joint venture between Ma'aden and Saudi Basic Industries Corporation (SABIC).

Up to 5 million tonnes a year of phosphate ore from the Al Jalamid mine under development in northern Saudi Arabia will be processed near the mine site and stripped of sand and clay.

The resulting phosphate concentrate will be moved by rail to the Ras Az Zawr chemicals complex on the Gulf coast. There, it will be used as feedstock for producing up to 2.6 million tonnes a year of the fertiliser diammonium phosphate for export.

Mr Akhtar values the net worth to Ma'aden of the integrated phosphate project at 11.2 riyals a share, or almost double the 5.7 riyals a share value he has calculated for the company's gold assets.

Ma'aden is also planning to expand into mining and processing aluminium. It is developing a bauxite (aluminium ore) deposit at Az Zabirah in central Saudi Arabia as the 79 per cent majority partner in a joint venture with Alcoa, the US aluminium giant. Production of 4 million tonnes a year of bauxite is scheduled to start in 2014.

A refinery to produce alumina (aluminium oxide), an aluminium smelter and a rolling mill are included in the project, with the refinery due to start up at the same time as the mining operation.

The smelter and rolling mill are to begin commercial operations a year earlier and will initially be fed by imported alumina.

Mr Akhtar assesses the future value of the integrated aluminium operations to Ma'aden at 4.9 riyals a share.

The "well integrated operational structure" of the new phosphate and aluminium projects will help Ma'aden expand its core operations while diversifying its products, he said in a recent research report.

The new minerals processing activities would help the company expand its product line further to include other precious metals as well as industrial and refined products, Mr Akhtar added.

"The addition of well-diversified products will help the company to strengthen the ability to stabilise its sales revenue, which expected to increase at a [compound annual growth rate] of 86.4 per cent during 2009-2013 to 7.7bn riyals in 2013," he predicted.

That compares with Ma'aden's revenue last year of 634.4m riyals.