Alcoa Steps in Where Rio is Unable to Tread

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M&A Activity, Non-ferrous Metals

Alcoa hasn’t lost sight of the long term even as it juggles production capacities and investment projects around the world in an extremely tight financial investment climate. Where Rio backed out of its 49% stake in the Ras Azzour aluminum smelter earlier this year because it failed to raise the capital for what was then estimated to be a $8bn project Aloca has stepped in with a more imaginative, if somewhat smaller, involvement.

Now Alcoa and a number of western partners said by Reuters to include Flour, Bechtel, Canada’s SNC-Lavalin and France’s Technip are to take a 40% stake in the project with Saudi Arabia’s Maaden taking the other 60%. The project will include a bauxite mine, alumina refinery, aluminum smelter and rolling mill is reported to now be estimated at  $10.8bn.

The plan is to mine some four million tons of bauxite from deposits near Quiba in the north of the kingdom and to refine 1.8 million tons of alumina on Saudi Arabia’s eastern seaboard. The plant’s smelter will have an annual aluminum production capacity of 740,000 tons and the complex will also house a rolling mill with an initial annual hot-mill capacity of 460,000 tons. The rolling mill was said by Alcoa to be designed for can stock, ends and tabs, although one unsubstantiated report suggested it may also make materials for the construction industry although that doesn’t logically fit with can stock gauges or grades.

According to the WSJ, the project will be developed and financed in two phases. The first output from the smelter and rolling mill is anticipated for 2013. Initial production from the mine and refinery is expected for a year later. Alcoa will arrange the supply of alumina to the smelter from outside Saudi Arabia until the project’s refinery is operating.

Alcoa no doubt sees this as a way to leverage their experience and expertise in the refining and production of aluminum products to gain a greater share of the off take from a new facility than they would otherwise be able to access from their minority 20% stake. For Saudi Arabian Mining (Maaden) there are obvious advantages to enlisting the involvement of the world’s most professional producer of aluminum if you are looking to sink  over $10bn in an aluminum venture. For Maaden, this is just one of many ventures into metals, minerals and chemicals to diversify the country away from its reliance on oil.

–Stuart Burns

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