Saudi profits from mineral wealth rush

The issue of 462.5 million $5.50 shares is half of Maaden's stock and values the company at $4.9bn.

The IPO is expected to raise $2.47bn and will provide the last link in the financing arrangements for the company's huge aluminium project says Maaden chief executive officer Abdullah Dabbagh.

Financing for the joint venture aluminium project with Rio Tinto Alcan is expected be concluded by August.

JP Morgan Chase & Company is advising Maaden over the IPO which will be restricted to Saudi institutions and individual investors. The remaining Maaden stock will be held by the Public Investment Fund which is controlled by the Ministry of Finance.

Financing complicated by construction costs

Escalating construction and material costs have complicated finalisation of the estimated $7.5bn venture, which involves building a 670,000 tonnes-a-year smelter, alumina processing facility and 1,800 megawatt power plant, north of Jubail on the kingdom's east-central coast at Ras Al Zour.

Rio Tinto Alcan will own 49% of the venture and draw on a 30-year bauxite reserve, in northern Saudi Arabia at Az Zabirah, to supply the smelter's alumina refinery. Maaden is targeting 2012 for the smelter's start-up.

The project is a major diversification for Maaden which at present generates most of its income from gold mining in the Kingdom but this will be dwarfed by the aluminium project, as well as by a phosphate venture now being developed.

The phosphate project is being carried out with Saudi Basic Industries Corporation at a cost of $4.5bn. This involves extracting phosphates in the Jalamid area of central northern Saudi Arabia and constructing a processing plant with a capacity to produce 3 million tonnes-a-year of di-ammonium phosphate fertiliser.

International market interest

The venture, when commissioned, is set to take more than 20% of the global market for phosphate-based fertilisers and is generating wide ranging international interest.

Standard Chartered Bank and Riyad Bank are advisors to Maaden and SABIC who hope to raise $2bn in Islamic financing for the project. Korean Export Insurance Corporation is also discussing providing $600m for the project.

Both the aluminium and phosphate projects are predicated on the building of a state-funded 1,500 kilometre railway linking the coast with the new mines in the north.

The rail link is expected to also open up mining opportunities for nickel, silicon, manganese, and other bulk ores.

Unexplored mineral resources

However, most of Saudi Arabia's mineral wealth still remains unexplored. The kingdom has two major geological regions. The Arabian Shield on the west side contains precious metals where large deposits of gold, iron ore, copper, phosphates, silver, uranium, bauxite, coal, tungsten, lead and zinc wait to be exploited.

The sedimentary cover to the north, west and south is the location of very large volumes of industrial minerals including world-scale deposits of phosphates and bauxite

Dabbagh points out 'there is a million square kilometres of ground to explore and we have only just started.'