Ma'aden, Alcoa Venture Agrees on $1.9 Billion in Loans for Smelter Project

(Bloomberg)--A joint venture between Saudi Arabian Mining Co., a state-controlled metals producer, and Alcoa Inc. signed finance contracts valued at 7.1 billion riyals ($1.9 billion) to help pay for an aluminum project in the kingdom.

The loans from 16 unidentified local and international banks will pay for part of the first phase of the project, Saudi Arabian Mining, known as Ma’aden, said in a statement on the Saudi bourse website today. The Saudi Public Investment Fund and the Saudi Industrial Development Fund will also provide $2.6 billion in financing for the first phase.

Saudi Aramco, the world’s largest state-owned oil company, and Saudi Basic Industries Corp. also signed financing deals this year to help expand refining capacity and petrochemical production. The aim is to diversify away from exports of raw crude and to manufacture higher-margin products. Aramco said Nov. 27 that it renewed a $4 billion revolving credit facility with Saudi and international banks.

The companies “are doing this mainly to finance their upcoming expansions,” Syed Taimure Akhtar, a senior financial analyst at Global Investment House KSCC, said. Ma’aden was rated a “Buy” in October at Global with a target price of 25.10 riyals a share. 

Stake Changes

Ma’aden signed in December a contract with Alcoa to build a $10.8 billion industrial complex to supply Saudi Arabia and global markets. In April, Ma’aden said it increased its stake in the project to 74.9 percent from 60 percent, while New York- based Alcoa’s stake decreased to 25.1 percent.

The Riyadh-based company said in June that its board approved $4.5 billion in financing for the first phase of the aluminum project. This represented 60 percent of the first phase, with a total cost of $7.5 billion. The facility is due to start production at the end of 2013.

The financing for the smelter and rolling mill was achieved “on very attractive terms” with “significant over- subscription,” Ken Wisnoski, Alcoa’s president of Global Primary Products Growth, said in a separate e-mailed statement. It didn’t provide the terms for the loans.

The venture project includes a bauxite mine in Qassim, a province in northeast Saudi Arabia, with a production capacity of 4 million metric tons. The material will be shipped by rail to a 1.8 million metric ton-a-year alumina refinery and a 740,000 metric ton-a-year aluminum smelter in Ras al-Zour, on the Persia Gulf.

The financing process for the second phase of the project, including a mine and refinery, will start “shortly,” according to the statement.