Maaden doubles up

18 October 2002

Saudi Arabian Mining Company (Maaden)is moving forward with plans to develop the Al-Zabirah bauxite mine and an associated alumina refinery and smelter, with the completion of a pre-feasibility study and the appointment of ANZ Investment Bankand Riyad Bankas financial advisers (MEED 19:7:02).

The estimated $3,200 million project is to be integrated with the estimated $2,500 million Al-Jalamid phosphate and fertiliser project via the new minerals railway connecting the mines to processing facilities on the coast.

Under the terms of the pre-feasibility study, Al-Zabirah is expected to produce nearly 3.5 million tonnes a year (t/y) of bauxite ore, which will be refined to 1.4 million t/y of alumina and delivered to a smelter on the Gulf coast with capacity of more than 600,000 t/y for export. The plans were significantly enlarged from the initial proposals late last year.

Al-Zabirah is believed to have reserves of about 126 million tonnes of ore, grading 57.5 per cent alumina.

The smelter will use imported bauxite for the first two years of operation until the completion of the mining and railway facilities. The full feasibility study is to be completed by the end of 2003, financial close is expected in the second half of 2004, first aluminium production from the smelter will be in mid-2007 and the first bauxite will be produced from the mine in 2009.

ANZ and Riyad Bank signed their financial mandates to advise on both the Al-Zabirah and Al-Jalamid projects on 15 October. For Al-Zabirah, Australia's Kaiser Hatchand France's Pechineygave technical advice on the pre-feasibility study. A consultant has yet to be appointed for the full feasibility study.

The project is contingent upon the construction of the minerals railway, planned by Maaden and Saudi Oger, which are together developing the Al-Jalamid phosphate project. The railway will run from Al-Jalamid in the far north of the kingdom to Riyadh, where it will connect to an existing rail link to Dammam. While the phosphate and bauxite projects are being developed separately, with different financial models, each needs the other to go ahead in order to be financially viable, bankers say.

Technical advisers are yet to be appointed on the Al-Jalamid project, which involves the extraction of phosphate in the far north of the kingdom and its processing into diammonium phosphate and phosphoric acid at a cost of $1,200 million. The legal adviser is Baker & McKenzie.

The railway is expected to be the most expensive part of the Al-Jalamid project. It will stretch more than 1,200 kilometres and pass close to Al-Zabirah, which is situated near Hail, north of Riyadh. Project costs are estimated at up to $1,500 million.

The smelter would run in direct competition to Dubai Aluminium (Dubal)and Aluminium Bahrain (Alba). However, Maaden is expected to enjoy a significant cost advantage once bauxite is produced from Al-Zabirah.

Maaden was formed in 1999 from the old General Petroleum & Minerals Organisation (Petromin), part of the Petroleum & Minerals Resources Ministry. The most active player in the kingdom's minerals sector, it was established with an ambition to privatise as soon as possible.

Minerals development is a key part of the government's aim to diversify the economy. A new minerals law is to be passed by the end of the year, making investment in mining projects more attractive to foreign and private sector investors.

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