Is overseas expansion on the menu for Saudi Arabian mine company Ma’aden?

A phosphate rock production site at the Ma'aden aluminium factory in the Ras Al-Khair industrial area near Jubail City, 570 kilometers east Riyadh. (AFP)
Updated 06 May 2018
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Is overseas expansion on the menu for Saudi Arabian mine company Ma’aden?

  • KSA resources champion could one day follow Sabic and turn its sights on overseas targets
  • As it cuts borrowings, more opportunity for the company to spread its wings

LONDON: Saudi mining colossus Ma’aden is riding a wave of investor confidence as profitability is driven by robust commodity prices, growth in production across its minerals suite of phosphate, gold, copper and aluminum, as well as a cost-cutting program that has strengthened the balance sheet.
Now, there is market chatter that the next chapter of the growth story could be overseas. Some say Ma’aden will one day follow SABIC, KSA’s petrochemicals champion, by expanding its footprint in growth segments abroad, although its core business will always be at home.
“At the moment there is plenty of growth to go for in Saudi,” said Yousef Husseini, a broker at EFG Hermes in Cairo.
“But in the longer term, the company could shift its focus to global expansion similar to what SABIC has done in the last couple of decades as local market opportunities decline.”
Husseini said: “As Ma’aden de-levers its balance sheet and starts generating substantial free cashflow, that could potentially give it more resources to pursue inorganic expansion and diversify its asset base.”
For those who lift the bonnet to look inside Ma’aden’s KSA mining operations, they will find the company is already involved with international metals companies via joint ventures on its home turf. That allows it to look at global developments — and, perhaps, future opportunities — via business partnerships with international firms, particularly North American ones.


Ma’aden’s tie-up with Barrick Gold of Canada, the largest gold producer in the world, is a case in point. Ma’aden Barrick Copper, formed in 2014, is a 50-50 joint venture that has been producing gold at the Jabal Sayid copper mine, 120 kilometers southeast of Madinah, since June 2016. It is a not insignificant driver of group profitability. There is also a partnership with American industrial group Alcoa (25 percent) established in 2009. The upshot has been the construction of a state-of-the-art aluminum production complex in Ras Al-Khair.
Ma’aden-Alcoa has contributed about $4 billion to Saudi Arabia’s gross domestic product (GDP), it was revealed at the Saudi-US CEO Forum in Riyadh in May, reported by Arab News. The joint venture supports 3,500 direct jobs and 12,000 indirect jobs. If an expansion plan proceeds, aluminum capacity could be increased by 600,000 metric tons annually and result “in over 3,000 high quality direct and indirect jobs,” it was disclosed at the forum.
Additionally, Ma’aden and Minnesota-based Mosaic announced a memorandum of understanding to bolster their phosphates partnership. Together with SABIC, they have already invested about $8 billion in developing an existing phosphate operation. (For the uninitiated, phosphate rock is the primary source for phosphorus, one of three elements along with nitrogen and potassium that is critical as a crop nutrient that enhances plant growth and is used as a phosphate fertilizer.)
Ma’aden is advancing another phosphate property, with production slated to begin early in the next decade — bringing an additional 3 million tons per year for an investment in the region of $6.4 billion.
Estimated benefits from the project include a GDP contribution for KSA of about $2.4 billion and employment of 7,000, many of which would be high-quality jobs, it was said at the Saudi-US forum.
Husseini at EFG declines to speculate about which foreign territories might draw investment from Ma’aden in the longer term, or whether any cross-border activity would be executed with or without partners. “I simply don’t know,” he said.
He would only say that “we believe the company would initially be likely to focus on gold or copper projects (there are plenty of these in neighboring Africa) as Saudi’s phosphate resources are currently large enough to pursue further expansion in the Kingdom itself,” he said.


East Africa is viewed as an important region for Ma’aden. CEO Khalid Al-Mudaifer, who recently met with Kenyan fertilizer customers, was cited on the company’s website as saying: “In only a few years, Ma’aden has grown sales in East Africa by over 80 percent.” He added that some estimates suggest that the African agribusiness will become a 1 trillion dollar industry by 2030. But there is no evidence that Ma’aden is actively considering setting up mining operations in Africa at the moment.
Under Vision 2030, plans to reduce oil dependancy mean a tripling of the mining industry’s contribution to Saudi GDP over the next 24 years, making Ma’aden a major player in the reform program.
Structural reforms are planned in the mining sector, including the compilation of a database of the Kingdom’s resources to provide greater transparency to enable foreign as well as domestic miners to more accurately assess the viability of projects.
“Increased investment in Saudi Arabia’s mining sector looks set to lift its GDP contribution significantly in the coming years, as part of an accelerating push to diversify the economy under the Vision 2030 development plan,” said a report by the Oxford Business Group (OBG).
Ma’aden’s new Ad Duwayhi gold mine and processing plant has nameplate capacity of 180,000 ounces per year, making it the country’s largest to date. Its opening last year should create opportunities for a range of firms in the gold-extraction industry.
OBG said that surveys record 600 gold-bearing sites in KSA so far, most of them in the country’s west, only 29 of which have seen initial exploratory drilling.
“Some estimates put the value of Saudi Arabia’s gold reserves at $240 billion, which alongside extensive reserves of bauxite, copper, uranium and phosphate, bring the total worth of its mineral reserves to as much as $1.3 trillion,” OBG said.
The Vision 2030 document states: “We have been blessed with rich mineral resources. Although the mining sector has already undergone improvements to cater to the needs of our industries, its contribution to GDP has yet to meet expectations. As such, we are determined to ensure it reaches SAR97 billion by 2020, creating 90,000 job opportunities in the process.”
KSA also wants to stimulate private-sector investment by intensifying exploration, as well as reviewing the licensing procedures for extraction.
“We will form strategic international partnerships and raise competitiveness and productivity of our national companies. This will boost their contribution to the sector’s growth, as well as to the localization of knowledge and expertise,” the Vision 2030 statement said.


US-China trade deal hopes grow as oil prices decline

Updated 19 June 2019
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US-China trade deal hopes grow as oil prices decline

  • Data suggested a smaller-than-expected fall in American crude inventories
  • Preparations underway for Donald Trump to meet Xi Jinping next week at the G20 summit in Osaka

LONDON: Oil prices declined on Wednesday as data suggested a smaller-than-expected fall in American crude inventories, as hopes for a US-China trade deal continue to grow.
Brent crude futures were down 51 cents at $61.72 a barrel.
US West Texas Intermediate crude fell 25 cents to $53.65 a barrel. On Tuesday, it had recorded its biggest daily rise since early January.
After weeks of swelling, US crude stocks fell by 812,000 barrels last week to 482 million, the American Petroleum Institute said on Tuesday, a smaller fall than the 1.1-million-barrel drop analysts had expected.
Official estimates on US crude stockpiles from the US government’s Energy Information Administration are due during afternoon trading.
US President Donald Trump offered some support, saying preparations were underway for him to meet Chinese President Xi Jinping next week at the G20 summit in Osaka, Japan, amid hopes a trade deal could be thrashed out between the two powers. Trump has repeatedly threatened China with tariffs since winning office in 2016.
European Central Bank President Mario Draghi also offered a boost, saying on Tuesday that he would ease policy again if inflation failed to accelerate.
Tensions remain high in the Middle East after last week’s tanker attacks. Fears of a confrontation between Iran and the US have mounted, with Washington blaming Tehran, which has denied any role.
Trump said he was prepared to take military action to stop Iran having a nuclear bomb but left open whether he would approve the use of force to protect Gulf oil supplies.
On Wednesday, oil markets shrugged off a rocket attack on a site in southern Iraq used by foreign oil companies.
“It is interesting to note that the crude oil futures market could not rally on hawks planting bombs in the Strait of Hormuz but could rally on doves planting quantitative easing,” Petromatrix’s Olivier Jakob said in a note.
“This is an oil market that doesn’t know how to react when an oil tanker blows up but knows how to react when the head of a central bank makes some noise.”
Members of the Organization of the Petroleum Exporting Countries have agreed to meet on July 1, followed by a meeting with non-OPEC allies on July 2, after weeks of wrangling over dates.
OPEC and its allies will discuss whether to extend a deal on cutting 1.2 million barrels per day of production that runs out this month.