Saudi Arabian Mining Company - Maaden

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1 Saudi Arabian Mining Company - Maaden Recommendation Fair Value (SR) Price as of 11 November 2014 (SR) Expected return Company data Tadawul symbol 52- week high (SR) 52-week low(sr) YTD change Average trading volume (thousand shares) Market Cap (million SR) Market Cap (million USD) Number of shares issued (million) Free float Financial indicators Revenues (million SR) Net Income (million SR) EPS (SAR) PE ratio (x) P/BV (x) Dividend yield Net Income growth *Ending Q , % NA ,577 1, % %9.351 Overweight ,047 1, % % % 1211.SE % 4,758 33,041 8, % LTM* 8, % %..55- Update: Capital Increase Through Right Issue Maaden was established in 1997 as one of the leading mining companies in Saudi Arabia. Fifty percent of the company`s outstanding shares were floated on the Saudi equity market in The company is engaged in exploration, discovery and production of gold, phosphate, ammonia, and industrial minerals as well as infrastructure investments. Product Di Ammonium Phosphate Ammonia Gold Aluminum Low grade bauxite Caustic magnesia Kaolinite Infrastructure Country India, Bangladesh, Indonesia, China, Ethiopia, Kenya, Turkey, Thailand and Pakistan India, North America, South East Asia, Morocco Switzerland KSA, Kuwait, Japan, China, South Korea, Malaysia, Taiwan, Thailand and Indonesia KSA KSA, EU, Egypt, India, South Africa and UAE KSA KSA Capital Increase The company s paid in capital stands at SAR 9,250 million distributed over 925 million shares with a par value of SAR 10. Maaden in seeking to collect SAR 5,600 million from a right issuance and an extraordinary general assembly will be held on November 13, 2014 to approve the increase and determine the subscription price Maaden Industrial Investment Index Tadawul Index Reasons for the increase Maaden is embarking on huge expansions most notably Wa ad Al-Shamal phosphate project. In addition, many other line of business are still in the first phase of production and thus unable to provide financing for expansions. Subscription fees amounts to SAR 21 million. Maaden Ownership Breakdown Public Investment Fund 33% Sources: Albilad Capital estimates, Tadawul GOSI Public Pension Agency 50% For more information you may contact: Turki Fadaak Research & Advisory Manager tfadaak@albilad-capital.com Free Floating 7% 10% Or Albilad Capital Head Office: Tel : Fax : P.O. Box 040 Riyadh Our website: 1

2 Saudi Arabian Mining Company - Maaden Company Structure Saudi Arabian Mining Company Fertilizers Gold and Base Metals Aluminum Infrasturcture Petrochemicals Industrial Minerals Maaden Phosohate 70% Maaden Gold and Base 100% Maaden Bauxite & Alumina 75% Maaden Infrastructure 100% Sahara & Ma aden Petrochemicals 50% Maaden Industrial Minerals 100% Maaden Wa'ad Al- Shamal 60% Maaden Aluminum 75% Maaden Rolling 75% Source: Maaden Fertilizers Maaden Phosphate: A 70%-owned subsidiary which produces MAP, DAP, sulfuric acid, phosphoric acid and ammonia. The remaining stake is owned by Sabic. Maaden Wa ad Al-Shamal Phosphate Company: the company is building an international fertilizers complex in the northern province and its ownership will be split among Maaden (60%), Mosaic (25%) and Sabic (15%). Aluminum: Maaden Bauxite & Alumina Co., Maaden Aluminum Co., and Maaden Rolling Co.: the three subsidiaries form the company s arm in aluminum production. Ownership is shared between Maaden (74.9%) and Alcoa (25.1%). Gold and Base Metals: Maaden Gold and Base Metals: A fully owned subsidiary operating in the field of gold, copper, zinc and other base metals. Industrial Minerals: Maaden Industrial Minerals Company: A fully owned subsidiary operating in the production of bauxite, kaolin, caustic calcined magnesia Infrastructure: Maaden Infrastructure Company: specialized in preparing infrastructure and housing. Petrochemicals: Sahara & Ma aden Petrochemicals Company: An equally-owned joint venture in partnership with Sahara. The company s products are ethylene dichloride and caustic soda Sales Breakdown (12M million SAR) Fertilizers DAP 2,878 3,091 Ammonia 1,570 1,080 Subtotal 4,448 4,171 of total revenues 81.2% 69.0% Metallurgical Industries Aluminum 0 1,015 Gold 1, Industrial minerals Subtotal 1,028 1,875 of total revenues 18.8% 31.0% Total Sales 5,477 6,047 Sales Breakdown (6M million SAR) Fertilizers DAP 1,663 1,887 Ammonia Subtotal 2,178 2,492 of total revenues 73.0% 59.9% Metallurgical Industries Aluminum 396 1,228 Gold Industrial minerals Subtotal 805 1,669 of total revenues 27.0% 40.1% Total Sales 2,984 4,162 Source: Maaden 2

3 USD / Ton Saudi Arabian Mining Company - Maaden Company Overview Phosphate The fertilizers line of business is comprised of two companies, namely, Maaden Phosphate and Maaden Wa ad Al-Shamal Phosphate. As for the first company, its plants are located in Raas Al Khair on the Arabian Gulf and are supplied with phosphate from the north of the kingdom by train. In addition, sulfur and natural gas are supplied by Aramco at the price the government sets. Maaden commenced commercial production of ammonia in October 2011, while commercial production of di-ammonium phosphate (DAP) started in February Ammonia and DAP sales amounted to SAR 1.08 billion and SAR 3.09 billion in 2013, respectively. As for Wa ad Al Shamal project, the project investments are estimated at SAR 28 billion and will launch operation at the end of Production capacity of the project amounts to 16 million tons per annum, including 3 million tons of phosphate and compound fertilizers as well as 440k tons of other downstream phosphate products The investment cost of the project is financed as follows: 5,062 million from the company s capital increase 1,266 million from Sabic 2,109 million from Mosaic 10,086 million banking loans 7,500 million from Pubic Investment Fund 2,100 million from Saudi Pubic Development Fund As for the global market, International Fertilizers Association (IFA) forecasts surplus in phosphoric acid supply to reach 2.93 million metric tons of nutrient in 2014 which equivalent to 6% of total supply. This ratio will increase slightly afterwards. Meanwhile, supply of phosphate rock will grow 18% during the period from 2013 to Morocco, China and Saudi Arabia will contribute 62% of this growth. The association also forecasts demand for phosphate and nitrogen fertilizers will grow in the five coming years at an average rate of 1.9% and 1.5%, respectively. According to IFA, global production capacity of ammonia is expected to grow 16% during the period from 2013 to 2018 reaching 245 million tons of nutrient, while seaborne ammonia supply is expected to increase 3-4% over 2013 reaching 19 million metric tons. New DAP capacities will represent 80% of increase of 5.1 million metric tons (nutrient) in global production capacities of phosphate fertilizers during the period DAP is the main fertilizer product for Maaden even after the new expansions and the following chart depicts the World Bank s forecast for this product. DAP and Phosphate Rock Prices Projections DAP Phosphate Rock Source: World Bank 3

4 USD / Ton Saudi Arabian Mining Company - Maaden Company Overview Aluminum The production facilities of aluminum at Maaden are vertically integrated starting from exploration, alumina production and then aluminum and ending with rolling. Three subsidiaries, in which Maaden has a controlling stake, operate in different levels of aluminum production. The company s mines exist in Al Baatheya in Al Qassim and the raw materials are transported to the company s factories in Raas Al Khier through train. Last year, the company s production of aluminum amounted to 187k tons and generated sales of SAR 1.02 billion. The total production capacities of the aluminum smelters is estimated at 740k tons per annum, and will require 1.4 million tons of alumina. In addition, 51% of total aluminum production will be directed to the rolling factories to be reshaped. According to an agreement between Maaden and Alcoa, every partner will purchase aluminum from the joint venture at the international price and according to ownership stakes. It is noteworthy that global production of aluminum amounted to 50.6 million tons in 2013, of which China contributes 43%, while global consumption hit 50 million tons. The selling price reached USD 1,847 per ton last year, and the following charts shows the World Bank s forecast for aluminum price. 2,200 2,150 2,100 2,050 2,000 1,950 1,900 1,850 1,800 Aluminum Prices Projections Source: World Bank 4

5 USD / Once Saudi Arabian Mining Company - Maaden Company Overview Gold Maaden is currently operating through 5 mines and will start operations at Al Dewehy mine in 2015 in addition to conducting feasibility studies for other places in the kingdom. In 2003, the company s production of gold reached 033.3k ounces while the selling value amounted to SAR 709 million versus a production and a selling value of 137.8k tons and SAR 1 billion in Every mine has its own required production utilities. According to an agreement signed mid-2012, Maaden sold 75% of gold and base metals quantities to MKS, a leading international gold trader, while the remaining is sold to another international buyer. The contract will end on June 30, According to Maaden, it will have no problem if the contract is not renewed or cancelled. Overall, gold differs from other metals in its uses. In addition to demand as jewelry, gold is used in industrialization as well as an investment tool by central banks and commodity investors. Accordingly, its price is also affected by global economy, exchange rates and investment flows. Gold Demand Breakdown - Q % 24% 53% 11% Personal Use Technology Investment Central Banks Purchases Source: World Gold Council In the last two years, gold prices have followed a down trend impacted by lower demand and higher USD. Gold Prices Projections 1,500 1,400 1,300 1,200 1,100 1,000 Source: World Gold Council 5

6 USD / Ton Saudi Arabian Mining Company - Maaden Company Overview Copper Currently, Maaden is investing USD210 million to acquire a 50% stake in Jabal Sayid copper project, and the deal is expected to be finished at Q Production is forecasted to start at the end of 2015 with an annual production capacity ranging between 45,000 and 60,000 tons per annum. Total reserves of the project is estimated at 650,000 tons and the useful life of the mine is initially estimated at 15 years. In addition, Maaden has completed a feasibility study last year to explore for copper and zinc in Al Haggar mine. Globally, copper mine production increased from 16.9 million tons in 2012 to 18.1 million tons in 2013, while refined copper production reached million tons. Copper usage surged from 20.4 million tons in 2012 to million tons in As for selling price, the copper price in 2014 slumped below the USD 7,000 per ton level with the increase in supply and concerns related to economic growth. the following chart depicts the forecasts of the World Bank for copper in the ten coming years, and as apparent from the chart, there is a forecasted limited drop in the selling price over the period after Copper Prices Projections 7,400 7,300 7,200 7,100 7,000 6,900 6,800 6,700 Source: World Bank Industrial Minerals Maaden produces bauxite, kaolin, caustic calcined magnesia. In 2013, Maaden produced 64.3k tons of kaolin and sold 60.6 k tons, of which a great portion was directed to Maaden Phosphate company. One million tons of low grade bauxite was produced in 2013, while sales of this product increased from 836k tons in 2012 to 934k tons in 2013 owing to the increase in demand from local cement producers. As for caustic calcined magnesia, production amounted to 29.5k tons in 2013, while sales increased from 27.3k tons in 2012 to 29.1k tons in 2013 motivated by attracting new clients in different countries. Ethylene Dichloride and Caustic Soda Maaden owns 50% of Sahara & Ma aden Petrochemicals Company, which started experimental operations in Q3 2013, while commercial production started in July The production capacity of the project is estimated at 250k tons of caustic soda and 300k tons of ethylene dichloride. Ethylene which is a feedstock for the project is supplied by National Industrialization company. According to an agreement with Sabic, the latter is charged with marketing caustic soda until the launch of operations in Maaden s Alumina plant, which will use it in production. Sabic also markets ethylene dichloride in the international market. 6

7 Saudi Arabian Mining Company - Maaden Balance Sheet (million) Change Balance Sheet (million) Change Total Current Assets 12,428 12,311 10,993 7, % Total Current Assets 7,180 9, % Property, Plant and Equipment 212 7,450 18,541 18, % Property, Plant and Equipment 18,130 38, % Projects Under Construction 21,691 22,227 22,987 36, % Projects Under Construction 36,994 23, % Other Long Term Assets 385 1,586 2,620 1, % Other Long Term Assets 1,647 1, % Total Assets 34,716 43,574 55,141 63, % Total Assets 63,951 73, % Current Liabilities 2,297 3,823 5,934 6, % Current Liabilities 6,611 6, % Long Term Debt 13,527 18,815 25,800 31, % Long Term Debt 31,545 39, % Other Long Term Liabilities % Other Long Term Liabilities % Shareholders' Equity 18,707 20,705 23,084 25, % Shareholders' Equity 25,007 27, % Total Liabilities and Shareholders' Equity 34,716 43,574 55,141 63, % Total Liabilities and Shareholders' Equity 63,951 73, % Income Statement (million) Change Income Statement (million) Change Revenues 707 1,533 5,577 6, % Revenues 4,592 7, % Cost of Revenues ,982 4, % Cost of Revenues 3,378 5, % Gross Profit 386 1,001 2,594 1, % Gross Profit 1,215 2, % Operating Expenses % Operating Expenses % Operating Profit , % Operating Profit 559 1, % Net Interest Expense % Net Interest Expense % Other Expenses/(Income) (114) (87) (56) (1,381) Other Expenses/(Income) (1,464) (38) -97.4% Net Income Before Zakat and Taxes ,532 1, % Net Income Before Zakat and Taxes 1,888 1, % Zakat and Taxes % Zakat and Taxes % Minority Interest (5) % Minority Interest % Net Income (9) 413 1,091 1, % Net Income 1, % Cash Flow Statement (million) Change Cash Flow Statement (million) Change Net Income Before Zakat ,532 1, % Net Income Before Zakat 1,888 1, % Depreciation and Amortization , % Depreciation and Amortization % Cash Flow From Operations (399) 13 2,174 1, % Cash Flow From Operations 1,734 2, % Cash Flow From Investing Activities (5,140) (4,979) (9,089) (10,278) 13.1% Cash Flow From Investing Activities (7,060) (10,679) 51.3% Cash Flow From Financing Activities 5,091 7,088 8,045 6, % Cash Flow From Financing Activities 5,826 9, % Change In Cash flow (448) 2,122 1,131 (1,839) Change In Cash flow % Beginning Cash Balance 3,371 2,922 5,044 6, % Beginning Cash Balance 5,742 3, % Ending Cash Balance 2,923 5,044 6,175 4, % Ending Cash Balance 6,243 4, % Source: Maaden Filings 7

8 Saudi Arabian Mining Company - Maaden Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight: The Target share price exceeds the current share price by 00%. We expect the share price to reach the Target price over the next 9-12 months Neutral: The Target share price is either more or less than the current share price by < 10% We expect the share price to reach the Target price over the next 9-12 months Underweight: The Target share price is less than the current share price by 00%. We expect the share price to reach the Target price over the next 9-12 months To be Revised No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials, waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research. Albilad Capital Client Services clientservices@albilad-capital.com Tel: Toll-free: Asset Management falqutub@albilad-capital.com Tel: Research & Advisory research@albilad-capital.com Tel: Website: Brokerage myabes@albilad-capital.com Tel: Investment Banking mmandil@albilad-capital.com Tel: Disclaimer AlBilad Investment Co. exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Investment Co., its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Investment Co. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools. AlBilad Investment Co. preserves all rights associated with this report. 8