Alcoa Signs Saudi Agreement

According to published reports, U.S. aluminum giant Alcoa (AA - Analyst Report) has signed an agreement with the state-run Saudi Arabian Mining Co. (Maaden) to build a $10.8 billion aluminum complex. Under the agreement, the two firms will build a 1.8 million ton per year aluminum refinery and a 740,000 million ton per year smelter, a bauxite mine with an annual capacity of 4 million tons and a rolling mill with a capacity of up to 460,000 tons. The refinery is planned to be built in Ras Azzour on the kingdom's Gulf coast close to Maaden's phosphate fertilizer plants.

The smelter is scheduled to start production in 2013 while the refinery is slated to come online in 2014. The firms have yet to raise the financing, which they will do for during 2010. Alcoa stated that the costs of $10.8 billion would be split, with the U.S. firm and its partners paying 40% and Maaden handling 60%.

Upon completion, the project will make Saudi Arabia and the Middle East a major hub for aluminum production and its downstream industries. Development will take place in two phases, starting with the smelter and the rolling mill, followed by the mine and the refinery. Plans call for the expansion of the mill to 460,000 tons of aluminum sheet, end and tabs stocks for the manufacturing of aluminum cans.

For the alumina refinery, Maaden has received four bids for a $1 billion engineering, procurement and construction management contract. Meanwhile, Maaden is investing about 60 billion riyals ($16 billion) to develop the kingdom's phosphate, bauxite, gold and industrial minerals and help reduce its reliance on oil.

Earlier this month, Alcoa through its subsidiary Alumar had inaugurated the expansion of the Alumar alumina refinery in northern Brazil, where capacity more than doubled from 1.5 million tons to 3.6 million tons per annum. Alcoa’s share of the expansion will be 1.1 million tons per annum.

Alcoa Aluminio and Alcoa World Alumina and Chemicals (54%), BHP Billiton (BHP - Analyst Report) (36%) and Rio Tinto Alcan (10%) jointly own Alumar, located in Brazil. Alcoa manages the facility.

Alcoa World Alumina and Chemicals is a joint venture between Alcoa and Alumina Limited, with Alcoa holding 60%. Alcoa’s share of the Alumar refinery expansion will be supplied by the recently completed Juruti bauxite mine in Brazil.

Alcoa’s investment in the Alumar expansion, which totaled $1.0 billion, will place Alcoa’s global refining system in the lowest-cost quartile on the global cost curve. Production at the refinery will be ramped up to reach its full capacity by the end of the first quarter of 2010. Alcoa stated that the Alumar alumina refinery is one of the lowest-cost refineries in the world.

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